When Congress votes this summer, as expected, to fund the last big chunk of the savings and loan bailout, it will close the books on history's costliest financial disaster.

While the legislators are at it, they should also put an end to the litigation rampage set loose when the bailout effort began four years ago with the passage of the Financial Institutions Reform, Recovery, and Enforcement Act.

Since that 1989 law, the Resolution Trust Corp. and the Federal Deposit Insurance Corp. have become the country's largest employers of law firms. In addition to their own immense legal staffs, the RTC and FDIC retain over 2,000 private law firms at a cost to the taxpayer approaching $1 billion a year.

Not a Call for Amnesty

No one suggests the RTC Funding Act of 1993 provide a blanket amnesty for the S&L industry's bad actors. The government should continue to pursue cases where fraud, self-dealing, and other serious wrongdoing led to the collapse of banks and thrifts.

But government should call off the attack dogs demolishing the careers and financial statements of thousands of innocent former officers and directors accused only of "simple negligence."

Members of Congress who were around in 1989 may recall that the language of the original bailout bill included only "gross negligence" - wanton disregard or intentional wrongdoing. But overzealous government lawyers found ways to use state law to sue on simple negligence - flawed business judgment - and thereby circumvent the intent of the bailout law.

Well-Meaning Thrift Managers

Former S&L directors from all over the country had approved, in good faith but with less than perfect foresight, loans in the Southwest before oil prices collapsed or on real estate before the 1986 Tax Reform Act knocked the pins out from under property values.

Now they find themselves in David-and-Goliath legal battles with the government - an opponent with unlimited funds and 20-20 hindsight.

One group of beleaguered directors from a failed Utah thrift took the gross versus simple negligence question all the way to the U.S. appeals court in Denver. The judges were sympathetic but ruled against them on state law, saying they had come to "the wrong forum."

The right forum is Congress, which - with a sentence or two in the RTC Funding Act - can finally make clear that it never intended to brutalize well-meaning bank managers for mistakes in judgment.

Net Loss on Lawsuits

Even a cynical calculus that justifies this legal reign of terror based on "net proceeds" to the government breaks down.

I publish a newsletter for defendants, and we provide information obtained under the Freedom of Information Act on how much the RTC and FDIC has spent on the law firms it retains to sue directors. While admittedly anecdotal, our information indicates that the government spends far more than it will ever take in.

If the cost of the agencies' inhouse lawyers and investigators is added in, it is impossible to envision a "profit" from these suits.

My attempts through Freedom of Information Act requests to get comprehensive information on simple-negligence suits have been unsuccessful. So I suggest that Congress, through its oversight hearings, ask for hard data on the resources expended, compared with the actual restitution obtained on the taxpayers behalf.

I expect that when the settlements coerced from a few major law firms and accounting firms are eliminated, the efficiency of the recovery is shockingly low.

Chill on the Economy

The decline in business lending in the middle of an expansion is unprecedented and hurting the economy. Then again, so is the spectacle of the government suing its citizens for poor business judgment.

The connection is obvious. Bankers are skilled in assessing risk and return, so when they see their counterparts from failed financial institutions hung out to dry for making loans that eventually sour, they do the rational thing with respect to lending - they make fewer loans.

People inside the Washington Beltway may be too jaded to understand that the vast majority of the simple-negligence defendants served institutions in places like Cedar Rapids, Casper, and Birmingham. They were performing a community service and received only modest board fees.

Congress should end the shameful vengeance attack launched unwittingly against many of our most productive citizens.

Several states have already passed laws to prohibit such lawsuits against their residents on simple negligence grounds, but the laws will apply only to future lawsuits. Only Congress can cause these malicious suits to be dropped retroactively.

The only special interest group conceivably offended would be the Association of American Trial Lawyers.

Mr. Morris is president of Fortune Group, a St. Louis investment banking firm, and publisher of Regulatory Watchdog.

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