Soldiers of Fortune

...Finally, in November 1991, RTC's worst nightmare came true: The press got wind of the debacle...

...Meanwhile, in Denver, officials in the regional office had political considerations of their own...

...That was how we evaluated the thrift...

...Only eight of the 92 institutions had their books balanced...

...After investigations by the General Accounting Office, To find 800 accountants, the Task Force turned to temporary employment agencies, which produced, among others, a recent high school graduate with no accounting training and a college marketing graduate with little accounting knowledge who was put in charge of an entire field team...

...The promise was ridiculously overstated...

...Here's why: At every financial institution, thousands of transactions happen on any given day, from receiving monthly mortgage checks to payments on complicated development loans...

...In Washington, Kelly was reportedly furious that the project was so far behind schedule...

...Just be there...

...No explanation, no instructions...

...Where was the money coming from...

...In order to recover money for taxpayers, RTC needed to sell the myriad loans it seized from dead thrifts...

...And an outside auditing firm was hired to evaluate Western Storm...

...With Washington's whip to their backs, they decided it was faster simply to disconnect entire computer accounting systems, sending thousands of transactions to oblivion...

...So many records were missing or confused that RTC didn't know what to do with the loan payments...

...Brown was a workaholic...

...Overweight, intense, and able to work 16-hour days, seven days a week, he had a vision: "He said, 'If you give me 1,000 people, we can get this done in a month's time," a colleague later recalled...

...Then, in a panicked effort to put its books back in order, it launched a massive campaign that, according to government investigators, was riddled with the same incompetence that led to the initial error...

...A senior official said he was ordered to alter RTC's computer ledgers at one point to show Congress that RTC's books were in order...

...That was a joke from the start...

...It would no longer know how much its loans were worth...

...But RTC management wanted to believe him, and they placed him on the job under Pyland, who was put in charge of organizing the project...

...Bank cards True to the most aged of political cliches, RTC officials in Washington decided to leap into action and study the problem...

...Accountants who worked on the project said RTC field managers ordered them to alter records so that costly mistakes appeared to have been caused by previous management, not by Western Storm...

...Sara Aarthun, a senior asset operations specialist in Washington, toured the regional outposts and found what Pyland had already discovered...

...It couldn't be done, not on that deadline...

...To prove the agency was well on the road, Chairman L. William Seidman scheduled the agency's largest-yet loan auction for the following June...

...A field employee in California said: "Some people just packed up and went home and told the supervisors, 'Call us when we can do some work.' And yet they billed 60 hours a week on their time cards...

...We closed so many thrifts so fast that the accounting just went to hell in a hand basket...

...But is it...

...He went to his superiors in Denver and Washington, where, in the fertile soil of bureaucratic politics, the seeds of a whole new catastrophe were sown...

...During an interview in RTC's Denver quarters that month, Casey slapped the palm of his hand on the conference table in front of him and said: "We consider that chapter closed...

...It recruited hundreds of workers from its predecessor agencies, the Federal Deposit Insurance Corporation, the Federal Asset Disposition Association, and the Federal Home Loan banks...

...Homeowner alone In July 1992, a year after Western Storm was supposed to have been completed, RTC announced it had finally put an end to the fiasco...

...Some thrifts had invented bizarre accounting systems that seemed to defy interpretation...

...Still more disturbing was the work itself...

...If left unchecked, Pyland believed, the suspense account would grow exponentially and the bailout could fall apart before it began...

...Then, in November 1990, David Pyland, a regional director of contracting in RTC's Denver office, discovered something was very wrong...

...They were really caught up in that aspect of it, but I really don't think they understood the magnitude of what we were getting into...

...Casey sent a task force to Denver to "let heads roll," in the words of one official...

...Their assault would require at least 800 accountants, far more than what RTC could provide...

...Pyland and Brown, set up in a command post they called "The Storm Center," faced problems from the very start...

...What seemed foremost in their minds was the impression their work would make...

...There never was an accurate inventory of what those thrifts really had...

...Without accurate records, RTC's entire mission was in jeopardy...

...It turned in outrageous bills even for small thrifts that seemed to involve little work...

...January/February 1993/The Washington Monthly 21 Despite the complexity, the teams of recruits were left to drift, untrained and with no direction from RTC superiors...

...And it would have a fountainhead of cash flowing in that it wouldn't know what to do with...

...And some officials say the agency hasn't dealt with some of the root problems that caused the trouble to begin with: inadequate computer systems and sloppy accounting...

...Making matters worse, the different parts of the computer system RTC inherited from other agencies spoke different languages, which meant that information, when it was entered, could not be adequately manipulated...

...Suspense accounts are where RTC puts money it doesn't know what to do with, like monthly mortgage checks written to the wrong bank or payments mailed without a coupon...

...In February 1992, Salomon Brothers backed out of a potentially lucrative deal to package $67 million in RTC loans as mortgage-backed securities citing the agency's inaccurate information...

...Koopmans and his staff agreed that the books of 92 failed S&Ls had to be reconstructed and put back in order...

...Fearing retribution from your neighbors, who stand to lose a lot of money from your error, you hire someone to put things back in order...

...The nation's savings and loan bailout agency, the Resolution Trust Corporation (RTC), lived precisely this scenario, not with used furniture, but with your money...

...Despite Aarthun's five-page memo describing what by all accounts was an emergency situation, Washington hesitated...

...Collateral damage In January 1990, RTC opened regional offices in Atlanta, Dallas, Denver, and Kansas City...

...We still don't know where we are," said one of those officials...

...How many homeowners were threatened with foreclosure when they'd been making payments all along...

...So RTC hired a small private firm in Denver called the Financial Management Task Force, whose biggest job until then had been managing 14 failed industrial banks for the State of Colorado...

...They liked to pretend we were the army...

...But how...

...Cash was flooding into the Denver regional account so fast that five months later it would contain over $7 billion...

...The three executives—Lamar Kelly, David Cooke, and Bill Roelle—were career bureaucrats...

...When the maelstrom was over, Koopmans, arguably the least responsible of those connected with the project, was selected to take the fall...

...There was this attitude toward people who tried to point out mistakes," said an accountant who worked on the project both in Denver and in the field...

...As the months wore on, tension mounted...

...It was pandemonium," one RTC manager recalled...

...Some RTC officials began to wonder if the Task Force wasn't taking the agency for a ride...

...That was all...

...Others seemed to lack any system at all...

...After news reports detailed the project in December, RTC's new chairman, Albert Casey, admitted before the House Banking Committee that "We blew it...

...And RTC had already paid the Task Force $10 million...

...The first blunder, known as "Operation Clean Sweep," was conceived by three newly appointed RTC executives in a Washington, D.C...

...Russell Brown, acting director of asset management in the Denver office, gave everyone the answer they wanted to hear...

...The agency still doesn't know how much its accounting troubles cost taxpayers in wasted time and money...

...But the bureaucrats catered to public opinion at the expense of the bailout's realities, say some officials in RTC's ranks...

...They had been appointed to help build RTC from scratch...

...The story of how the government lost and then found $7 billion is a glimpse inside one of the nation's largest bureaucracies, at the misplaced patriotism, political manipulation, and indecision that have crippled the agency since its formation...

...At first, RTC didn't seem to understand the disaster it was creating...

...Entrusted to close ailing thrifts and sell their assets to help recover some of the $500 billion lost in the S&L debacle, RTC misplaced $7 billion in loans and other assets—funds that simply disappeared from its computer ledgers amid the chaos of its own burgeoning bureaucracy...

...These guys loved the whole military thing," said one official charged with carrying out Clean Sweep...

...conference room in October 1989...

...One of their primary jobs, other than firing management and hanging out a new sign when necessary, was to make sense of each institution's accounting system and transfer it to RTC's own computer ledgers...

...The answer was obvious...

...A suburban nightmare...

...And even if the workers had been properly trained, RTC's computer system couldn't have handled the volume and complexity of the loans involved in Clean Sweep...

...He found more than $1 billion in an RTC holding tank called a suspense account...

...Loan payments arrive at the institution where they are normally entered into a computer accounting system...

...But instead of getting to work when they arrived, they sat idle for as long as a month—billing RTC for their time— while they waited for vital instructions and equipment to come from the Storm Center in Denver...

...With an operation as grand as Clean Sweep, who in Congress, or among the public for that matter, could doubt RTC's commitment to the task at hand...

...The only remaining business was to give the project a name...

...The problem is behind us...

...Clean Sweep's planners apparently never considered more modest plans to close a few thrifts at a time, which would have allowed the agency to learn from its mistakes on a small scale before making irreparably large ones...

...20 The Washington Monthly/January/February 1993 nfancy with only a handful of bureaucrats in its employ, no offices outside Washington, and only a vague idea of the immense job before it...

...It is the story, really, of two giant blunders that began at RTC's birth in 1989...

...At giants like Imperial Savings in San Diego, Charles Keat-ing's Lincoln Savings, and Western Savings and Loan in Phoenix, they found warehouses of documents that would take months to sort out...

...It was a crucial task...

...Their agenda was to hire an outside accounting firm and mount an all-out attack to begin in April and finish in June before the loan auction...

...If the system is disrupted, no one will know which payments belong to which loans...

...She also found similar problems at the other three regional offices...

...Unable to locate loans for which the payments were meant, RTC simply dumped the money into holding tanks...

...He was removed and placed in an out-of-the-way post in Washington...

...To do that, the agency needed to know what loans it was taking over and how much they were worth...

...But it should have had a clue when Congress's investigative arm, the General Accounting Office, discovered RTC's records were in such disarray that it couldn't even begin an audit...

...It "contained considerable errors" and in some cases was meaningless, according to internal memos...

...Of course, they had good reason to consider public opinion...

...The managers wanted something to properly express the adrenaline-pumping scope of what they were about to start...

...In one mighty pass, the operation would steamroll the nation, closing or taking control of 189 dead and dying thrifts across the land...

...RTC had assigned only five people to oversee the entire project of 92 thrifts and 800 accountants...

...Such accounts are only glimpses at costs that may have spread wider and deeper than anyone knows...

...The system had been designed in more tranquil days to handle a handful of failures each year...

...But as the teams went to work, they found chaos beyond anyone's anticipation...

...Such a disaster as the one before him could ruin a career...

...The recruits were gathered at each of the 189 thrifts...

...The June 30 deadline for finishing the project came and went...

...But that's only a guess," he said...

...When the sale starts you encounter a small problem: In your haste you lose $7 billion worth of furniture...

...Together, they began to formulate plans for an assault on the Western region's 92 failed thrifts...

...They also apparently didn't realize that RTC had few if any trained staff to do the job or that its computer system was grossly inadequate, patched together from decade-old hand-me-downs from three other government agencies...

...Ink on the savings and loan bailout bill that created the agency was barely dry, and RTC was in its Steven Wilmsen, a reporter for The Denver Post, is the author of Silverado: Neil Bush and the Savings and Loan Scandal...

...You've been asked to collect all the merchandise, catalog it, and return the profits to your neighbors after it's over...

...Americans had watched in horror as the government bungled, played down, waffled, and hushed up different aspects of the savings and loan crisis...

...One RTC asset expert in Denver estimated the agency would lose 30 cents on the dollar, translating to at least $20 million that might have been recovered for taxpayers...

...It was arguably the worst mistake RTC could have made...

...Feeling a certain kinship with the soldiers preparing for Operation Desert Storm, they gave their battle no less noble a title, and Operation Western Storm was born...

...Soldiers of Fortune TheRTCs "Operation Western Storm," a mission to find 7 billion misplaced dollars, was a major victory—for slapstick by Steven Wilmsen Imagine you've been put in charge of the world's largest garage sale...

...Apparent acts of desperation began to proliferate...

...But the accounts were meant for thousands of dollars, not billions...

...If the records weren't in order by then, the auction could be a disaster of immense proportions...

...As the highest official responsible for RTC's assets, he needed to do something and fast...

...To find the 800 accountants it needed for the job, it turned to temporary employment agencies, which produced such professionals as a recent high school graduate with no accounting training and a college marketing graduate with little accounting knowledge who was put in charge of an entire field team...

...Even the Task Force was allowed to stay another year to finish the project...

...Kelly, Brown, and the rest of the RTC officials who ran Western Storm remained...

...It could be anything, probably a lot more...

...In addition to the obvious annoyance to the person making the payment, such a disruption could cripple a financial institution...

...Gnuary/February 1993/The Washington Monthly 23 RTC's inspector general, and an outside auditor, Treasury Secretary Nicholas Brady said the agency's system of internal controls "completely broke down...

...General Accounting Office auditors concurred, issuing a "clean certificate" for RTC's books...

...How many loans were sold at deep discounts because RTC didn't know what they were worth...

...Other teams didn't even try to make sense of the messes they encountered...

...It charged, for example, more than $50,000 for work at the tiny $344 million Independence Savings and Loan in Vallejo, California, whose books were out of balance by just $5,184...

...I was just handed a note and told to show up at such and such institution at such and such a time on such and such day," said one of those recruits...

...The losses rippled to other RTC activities...

...One day, all of us sat in a room together and arbitrarily came up with numbers," said a recruit assigned to a dead thrift in Colorado...

...They envisioned Clean Sweep as a symbol of RTC's entry into the world, a debut mission to display all the get-the-job-done, battle-trumpeting bravado the name implied, according to officials who followed Clean Sweep's conception...

...An RTC accountant who worked on the project said, "We all knew—the people who worked on the nuts and bolts of this thing—we knew how complicated it was...

...Sher-win Koopmans, a mild-mannered and somewhat boyish Midwesterner, was the new Western regional director, appointed just over a month before...

...They talked in terms of missions and code names and deploying troops...

...Part of the problem was that no one was minding the store in Denver...

...An RTC accountant said he knew of "at least 10 instances where they sold loans they no longer owned" because the records were so bad...

...Adding to the problem was the fact that RTC was under immense pressure from Congress to speed up the bailout...

...In at least one case, a supervisor apparently falsified weekly progress reports to cover for idle workers at a California thrift, saying his team was "proceeding nicely" on loans that didn't even exist, according to progress reports and loan documents...

...The problem presented an acute political dilemma for Lamar Kelly, RTC's top real estate executive in Washington...

...Qualified or not, these were RTC's troops, and they were rushed into the field in early April to meet the first set of already-looming deadlines...

...It was like, 'Shut up...

...All $7 billion was accounted for, it said...

...Until we have that, we may never really have a handle on it...

...None of us had ever done anything like it before...

...That system makes sure the money is credited to the proper loan, calculates the interest and principal remaining, and completes a host of other chores...

...Not quite...

...They were immediately ordered into the field to execute Operation Clean Sweep...

...It's going to work.' . . . There was this fear that if you spoke up, you wouldn't have a job...

...None of this seemed to faze RTC's top officials, who appeared less interested in actual success than in the appearance of it...

...The Task Force was hired as operation managers...

...A fiasco reminiscent of the days of vaudeville ensues and in the end, no one is entirely sure what has to be recovered and what it will cost to get it back...