I would be the first to concede there is a thrift industry problem, one that has consumed billions of taxpayer dollars and will continue to cost money until good business sense returns.

But let us set the record straight: The savings and loan industry would not have required a bailout by anyone if Washington had been doing its job right.

The scandal begins and ends in the halls of Congress and in the bureaucratic-administrative dinosaur that we the people are required to support with hard-earned tax dollars.

From Inaction to Overreaction

It is time our leaders stopped sitting on their hands, doing nothing when the first signs of problems arise, and stop overreacting, overregulating, and overemphasizing government involvement later, when the horse is out of the barn.

That is exactly what happened in the 1980s. And today the government finds itself in the real estate and banking businesses. These should be run by competent businesspeople, not by government employees who, though well-intentioned, most often lack business experience.

Though the financial industry regulators supported the Garn-St Germain Depository Institutions Act as an attempt to ease thrift industry restrictions, what followed was not the regulator's fault.

When they asked for help, for more staffing and examiners, and for increased budgets to address anticipated problems, they were ignored by the administration and by Congress.

In Over Their Heads

And so, young Federal employees with virtually no business experience were faced with the impossible task of trying to examine financial institutions and slow the headlong plunge of many into risk new business ventures.

With staff limitations preventing them from examining all institutions frequently and thoroughly, regulators proposed new limits on investments.

But these were opposed by special interest groups.

The special interests held sway with Congress, so the problems mounted.

What at first could have been fixed with a few hundred million dollars quickly became a major, long-term bailout problem. And still Congress delayed, with no one willing to take the heat in election years and the industry unwilling or unable to correct the problem itself.

In 1987, with its head still in the sand, Congress adopted a $10 billion bailout bill, still not admitting the true potential extent of the problem.

Fueling the Recession

The inaction was followed by belated overreaction, beginning with the thrift law of 1989. This overreaction has fueled and deepened the recession with which the country is still struggling.

The government took over hundreds of institutions, with billion of dollars of troubled loans and real estate. It then handed the problem over to bureaucrats who often had no experience in loan and real estate workouts. They dumped the properties into real estate markets at rock-bottom prices, at great cost to the economy and to the taxpayer.

Long gone are the early thoughts about using some of these properties for the poor and homeless, or giving them to charitable organizations. Ignored are the proposals of competent financial managers to assist the government in managing these failing institutions back to health.

And so the taxpayers linger in the uncertainty of recession or recovery, and the S&L industry struggles in the avalanche of regulations.

It is time for the regulators to concentrate on streamlining and simplifying regulations; for boards of directors to hold their CEOs accountable and to remove the incompetent ones; and for the government and Congress to get out of the financial services business.

It is absurd how many new rules and regulations have seen the light of day, rules designed by people unqualified, uninformed, and lacking in the ability to apply practical business sense to the S&L problem.

Most if not all of the failed S&Ls and banks could have been salvaged if the regulatory approach involved replacing managements and directors, coupled with government-assisted loans, much as was done with Chrysler. The taxpaying public would have been better served.

Businesses liquidated always lose money. A revitalized, well-managed business seldom does. Mr. Chenes is president, chairman, and chief officer of Continental Savings of America, San Francisco.

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