Special Report: Crisis in Banking: "A Bunch of Delinquents"

By Richard Woodbury/San Antonio Henry Gonzalez

Q. What are the effects of all this financial disarray on the average American?

A. There are definite signs of fear. For 50 years, the American citizen thought he never had to worry about one thing: his little deposit in the bank. Well, he's worrying about it now, and that is not good. You shake that public confidence, and no telling where events will lead us.

Q. Will the banks' problems ultimately be as serious as the thrifts'?

A. That depends on how quickly we can overhaul our entire financial system and bring some law-and-order to what has been a law of the jungle. The nation is repeating the mistakes of 1900 to 1929, when we stumbled through a crisis by never addressing the root cause: the breakdown of the regulatory systems. We must reform the apparatus, which is a mishmash of overlapping agencies.

Q. Meantime, does the Deposit Insurance Fund have enough money to see us through the crisis?

A. The fund is in great danger of exhaustion, and we may all have to bear the brunt. My hunch is that at the rate the fund is shrinking, the banks don't have the resources to shore it up. We can raise the premiums they pay in, but that may just send more banks into ruin.

Q. How much will the failed thrifts and banks ultimately cost the taxpayer?

A. At the present rate, it's a bottomless pit because the regulators have usurped Congress's powers. They've paid out nearly $10 billion to $100,000- plus account holders in failed institutions. Those accounts aren't even insured. The fund can't keep taking hits like that.

Q. Why does the cleanup appear to be dragging so slowly?

A. The special interests have paralyzed the legislative process with all their pushing and shoving. There's an amazing lack of maturity among our leaders in Congress and the private sector. I used to be a juvenile officer, and I know exactly what we have now: a bunch of delinquents, each of them with just enough muscle to block the other guy. It's been a sheer battle of appetites.

Q. Has the Resolution Trust Corporation shaken off its early problems and got on with the disposal of foreclosed assets?

A. The RTC is becoming what I always feared the most: a permanently overgrown bureaucracy. In Texas I'm getting disturbing conflict-of-interest reports about government lawyers who work on contracts and then quit and come back on the other side of the table on the same deal.

Q. Is there a clear plan in place for banking reform?

A. No, and that is the central problem. We must figure how to conceptualize the kind of banking system the country must have. One thing seems certain: we can't go on with the crazy patchwork of giant banks and small ones.

Q. Why is that?

A. There's no way the tiny banker can compete with an institution that has no bad loans and that has grown with the help of government underwriting of its takeovers. The small guy is going to go under. We have in a sense nationalized the system. And the diminished bank competition is aggravating the credit crunch.

Q. What led you to take such an aggressive role in unraveling the banking mess?

A. The goings-on were disgusting. It sort of helps, too, that the lobbyists can't figure me out. They call me eccentric because they don't know where I stand. They don't think I have any clout, so they try to ignore me. My campaign contributions from S&L lobbyists have been averaging $23 a year.