It is not necessary to hope in order to attempt, or to succeed in order to persevere.
ATTRIBUTED TO WILLIAM THE SILENT, PRINCE OF ORANGE (1533 –1584)
THE TWIN MARCH MIRACLES
The first March miracle was that the key House subcommittee voted in favor of a $15 billion FSLIC recap bill. The second was that the press began to come around,
recognizing that Gray was following good policies in the face of intense political intervention by the Speaker on behalf of Texas control frauds. The second miracle helped explain the success of the FSLIC recap in the subcommittee, so I will discuss it first.
POSITIVE PRESS ABOUT GRAY
Gray’s reregulatory efforts began to receive positive coverage in the mainstream and trade press. That was remarkable. Gray had received extraordinarily bad press
coverage for his entire term, and it had been getting worse. Senior administration officials attacked him regularly, as did powerful members of Congress, most of the industry, and a fair number of his own staff. He was presented as venal (all the expensive trips), malicious, and dumb as a doornail.
Gray was an extremely poor spokesman for his own cause. He typically wrote and typed his own speeches until four in the morning, showed up the next morning at a microphone looking like death warmed over, read a long speech that everyone had heard many times before, and praised himself as a latter-day Churchill. The speeches went over like a depleted-uranium balloon. To top it off, Gray could not understand why people did not react well to his speeches. He thought they were great. He sent them to every S&L in the country. (Their substance comes across very well when they are read now: he is constantly warning, accurately, that certain practices will lead to disaster.)
By March 1987, however, Gray was often dealing with a different part of the press.
The S&L story had been a business story; it now became a political story. (It had always been both; the jurisdictional gulf between the business and political reporters was one of the reasons the press performed so miserably in dealing with the S&L debacle.) Better yet, it was a political scandal, which meant that a reporter could hope for more column inches to explain the story and a much more prominent placement in
the paper. This new group of reporters investigated the issues from different
perspectives and with different sources. Financial reporters spent their time talking to S&L leaders. They were close to unanimous in their contempt for Gray. Financial reporters had to be present for Gray’s numerous speeches. They groaned and made fun of him (to one another) when he gave a speech.
Political reporters did not come to the story with that preconception. They knew that the story would work better if it had a protagonist. The idea of Gray as a
protagonist was inconceivable to most financial reporters, but for someone writing about the politics of the debacle, Gray looked like a very attractive one. He had started as an impassioned deregulator; he was a friend and strong supporter of the president;
he had become the great reregulator out of conviction (not ideology); and he had
persisted despite the efforts of senior administration officials to drive him from office and the efforts of the control frauds to bribe him away. Now he was taking on the most feared person on the Hill, Speaker Wright, and Speaker Wright was trying to aid the control frauds.
Although the industry hated Gray, his peers praised him. William Seidman, the FDIC chairman, and Paul Volcker, the former chairman of the Federal Reserve, were strong supporters of Gray, and they had excellent relations with the press. Gray’s
conversion and his dogged willingness to take on the powerful made for one hell of a story. Political reporters also knew that when the powerful are criticized, they always respond by trying to smear their accusers. The efforts by Don Regan, Charles Keating, and Speaker Wright to blacken Gray’s name might have been proof of his courage, not his mendacity.
Jack Anderson criticized the Speaker in a syndicated column for putting a hold on the FSLIC recap in order to coerce favors for DCCC contributors. That, along with our efforts to explain what the Speaker was doing to block the recap, began to bear fruit in the form of very bad press for the Speaker. Barry (1989, 390) provides
Wright’s reaction:
Every time Wright thought he was shut of that damned issue, it came back to haunt him. The savings and loan thing would not go away. Newsweek had done that story. The New York Times had done it. Business Week was doing it. The Texas papers, the
Houston Chronicle, Dallas Morning News, Austin American-Statesman, Dallas Times-Herald had all done it over and over. In late September [1987], a writer asked him what disappointments he had suffered. Wright did not mention any policy. Instead he talked of the press coverage of his involvement in the S&L issue. (emphasis in original)
These articles greatly restricted the Speaker’s ability to openly hold the FSLIC recap hostage and put him on the defensive. They also made it far more likely that members of the House Banking Committee would oppose the forbearance provisions drafted by the control frauds and support a $15 billion recap.
A MARCH VOTE IN FAVOR OF THE $15BILLION FSLICRECAP BILL The other miracle was even more improbable: standing up to Wright and criticizing his actions almost led to passage of the FSLIC recap in a desirable form. The second (near) miracle was a testament to three things. First, Gray was on the right side of an important issue, and Wright and the league were on the wrong side. Second, our
opposition’s weaknesses kept Wright from responding effectively to our arguments in the House Banking Committee. Third, there were some truly good public servants on the House Banking Committee and its staff who were willing to buck the will of an exceptionally powerful and nasty Speaker and a powerful trade association. I have already addressed the first two points, so I will turn to the third.
My discussion up to this point has emphasized the efforts of the Bank Board and our opponents. This has the danger of implying that our efforts were decisive in producing the near miracle in the House Banking Committee. In fact, the most
important factor was the strength of a bipartisan group of committee members who became convinced that the FSLIC recap was vital. The leaders of that group were (in alphabetical order) Tom Carper (Democrat from Delaware), Henry B. Gonzalez
(Democrat from Texas), Jim Leach (Republican from Iowa), and Buddy Roemer (Democrat from Louisiana).1
That mere listing presents two very unlikely facts. First, although the group was bipartisan (and, indeed, nonpartisan), most were Democrats. That may not seem strange. Democrats were generally less enamored with deregulation than were
Republicans, particularly by 1987. It always mystified Gray why so few Democrats supported his efforts at reregulation that so distressed the administration. But the FSLIC recap was an administration bill, so the first question was why there were so few strong supporters for the bill from the Republican side of the aisle. Jim Leach was one of the vanishing breed of Republican moderates who was famous for his
willingness to buck the administration. None of the partisan Republicans on House Banking took a leadership role in support of the FSLIC recap.
The fact that most in the group were Democrats was important for another reason.
It indicated that the Speaker had failed to sway them to his cause even though he had made clear his intense personal interest in their support, framed the issue as a partisan issue, and personally asked for their support. That third element is particularly
important. As Barry (1989) repeatedly emphasizes:
The most pressure a Speaker can apply is to ask. It is a lot. (102)
Although he said he was not dictating anything—“Please let me know how you feel,” he wrote [in his notes to the Democrats on Ways and Means]—between the lines came a stronger message: There will be taxes. Are you with me or not? Are you friend or foe? (147, emphasis in original)
Pressure? What’s pressure? There’s nothing higher than the Speaker asking for your help. There’s nothing higher than that,
… (446, emphasis in original)
Wright’s holding the FSLIC recap hostage at the behest of the control frauds was one of the key acts that began to erode the hill of sand on which he had built such apparent power. Barry (1989, 238) provides part of the tale.
Inside the House Wright was having problems on the issue too. He wanted a $5-billion package. Strong sentiment existed on the Banking Committee for the $15-billion package. The industry was in shambles and the sooner it was cleaned up, the less expensive it would be in the long run….
Wright and his Texas colleague Mike Andrews testified before a closed caucus of Banking Committee Democrats [on March 19, 1987] about their concerns about the regulators, and their fears of giving them too much power.
The context of Wright’s personal appeal to the Democrats on the House Banking Committee is revealing. As Barry’s book makes clear, Wright was experiencing unbroken success in the House on his priorities during 1987 and gaining largely positive reviews in the press. Barry (1989, 387) describes the extent of his power:
Wright seemed in absolute control of the House [by September 1987], about to challenge the President for supremacy.
He was in danger of losing only on this priority issue. He was losing despite having an enormous number of advantages. The FSLIC recap was, at best, a fourth- or fifth- tier administration “priority.” His primary opponent, Gray, was weak as well as
actively hated by the powers that be in the administration. The league was immensely powerful politically; its membership was united; the FSLIC recap was its sole priority;
and it supported Wright fully. (We were able to garner support from the realtors and the National Association of Home Builders. This was quite a coup. Understandably, however, the FSLIC recap was never a priority for them, so their support was
heartening but not active.) Wright had bipartisan support in the form of
Representative Bartlett. The Texas delegation was famous for its strength and
solidarity. Texas state officials, particularly Attorney General Mattox, lent their weight.
Wright had the chairman of the committee, St Germain, in his palm because of his exposure on the ethics charges. Wright should have been crushing the opposition.
Instead, Wright knew from the intelligence provided by his whip organization (which Coelho chaired) that he was in grave danger of losing the vote in the House Banking Committee. Nothing had gone right for the Speaker on this issue. Yes, by meeting personally with St Germain and other senior Democrats in January he had been able to halt progress on the bill, but the cost in political capital and vulnerability to press criticism had exceeded the gain. The attempt to intimidate Gray by having Barnard ask him about Vernon Savings and Independent American had blown up in the Speaker’s (and Gaubert’s) face. The February 10 meeting had been a fiasco for the
Speaker. The once-compliant Gray now refused to do any more regulatory favors.
Coercing the House Banking Committee to investigate the Bank Board’s supervision of Texas S&Ls had made matters far worse because it exposed the supposed victims as frauds and the supposed nazis as conscientious workers trying to do the job their predecessors had shirked. The hearing that was supposed to showcase the nazi reign of terror had embarrassed the proponents of forbearance. Mattox’s threats against Gray and Selby had been so crude that they hurt his reputation, not theirs. The press had turned against Wright on this issue and, most galling of all, in favor of Gray.
There was no one on the committee whom Wright could rely on to lead the effort against the FSLIC recap.
It was bad enough to lose, but to lose to Gray, a man he personally hated, was unthinkable. Wright decided to intervene personally.
This was the context when Wright and Andrews addressed the Democratic
members of the House Banking Committee on March 19, 1987. A meeting like this—
the Speaker addressing a closed session of a committee’s Democratic caucus to plead for its members’ support—was rare. It indicates that several things were going on.
First, Wright knew that he was about to lose the House Banking Committee vote.
Second, Wright cared enormously about the vote. He was expending tremendous political capital to try to win it. Worse, he was identifying his prestige as their leader with his success on the vote. If he lost the vote, he would damage the perception of power that he had so carefully cultivated. Indeed, the erosion had already begun:
Democrats on the committee knew that Wright wanted very much to defeat the FSLIC recap, yet several were prepared to join Republicans to defeat Wright’s position.
Third, he was asking colleagues, as Democrats, to support him. He was making a partisan issue out of defeating a bill that was not a partisan dispute and that had
previously enjoyed bipartisan support. Mayer (1990, 238) reports what Wright told the caucus.
The [Texas] economy was passing through a hard time, but there wasn’t, at bottom, anything wrong with the S&Ls. The problem was Gray and Roy Green of the Federal Home Loan Bank of Dallas, a nest of Republican regulators who were trying to kill off good Democrats, big contributors to the Democratic party [sic]. It was the duty of the Democrats on the committee to exert themselves and put a stop to that, first of all by holding down the FSLIC recap bill to $5 billion at the very most.
Henry Gonzalez recalled that Wright claimed the Bank Board was “saving the Republicans and damning the Democrats…. My request was, give me the
documentation. And when the documentation was not forthcoming, I did not act”
(Mayer 1990, 238). Barry doesn’t discuss this failure. If Wright had been able to
document his charges, he would have done so. Day (1993, 253) says that the Speaker told “horror stories” about the regulators.
After Wright made these repeated, highly unusual efforts to induce committee Democrats to support him on a matter they knew was dear to his heart and the interests of his constituents, it was particularly impressive when three Democrats became leaders in the struggle for the FSLIC recap. It was even more impressive considering that a vote to gut the bill did not seem likely to cause any political
embarrassment and that their efforts on behalf of a good bill were almost certain to fail.
Two of the leaders supporting the FSLIC recap came from states where they were likely to suffer for their support: Gonzalez was from Texas (San Antonio) and Roemer was from Louisiana. Every S&L in Texas and Louisiana opposed the $15 billion
FSLIC recap bill and supported ruinous forbearance. Although many of them
privately blamed the control frauds, publicly they all blamed the sharp fall in oil prices for causing a regional recession. Gonzalez and Roemer were taking a real risk that their constituents would consider them traitors. Voting in favor of a $15 billion FSLIC recap bill could not win them a single vote or a dollar in campaign contributions.
All of this, of course, made them invaluable as supporters of the Bank Board. The fact that “oil patch” Democrats supported the Bank Board made the complaints that we were nazis seem even more ridiculous. If they were willing to anger powerful
constituents for whom the bill was the first priority, surely other committee members from states with strong economies would not shrink from paying the small political price for supporting the FSLIC recap.2 No one could claim that Gonzalez or Roemer was ignorant of, or unsympathetic to, the problems of Texas and Louisiana. And they were both Democrats willing to oppose the Speaker.
THE FOUR STALWARTS
The four members of the House Banking Committee who took the lead in supporting the FSLIC recap were Gonzalez, Leach, Carper, and Roemer, and they all shared
several traits. Their colleagues knew they were independents and considered them reformers. They all had advanced degrees. Three of the four were moderates who were highly respected by their peers (the exception was Gonzalez).3 These four were so effective that we actually had the potential to win in the House Banking Committee.
THE MARCH MIRACLE IN THE SUBCOMMITTEE
The Japanese love cherry blossoms. They bloom all in a rush, and a single day of wind or rain can sweep them away. Their attraction lies in the ephemeral nature of the bloom as much as in the pale beauty of the blossoms. Japan gave cherry trees to the United States for our nation’s centennial. They ring the Tidal Basin in Washington,
D.C. Our first two children were born while the trees were in bloom; we marveled at them on our drive home from the hospital. Blooming in late March or early April, they are the capital’s quintessential symbol of spring, rebirth, and hope.
March 31, 1987, was cherry blossom day as far as the Bank Board was concerned.
Wright’s fears about the House Banking Committee vote were accurate. The Phelan report explains:
On March 31, the Subcommittee on Financial Institutions considered the recapitalization bill. St Germain offered a $5 billion, two-year plan with forbearance provisions as a substitute for the $15 billion, five-year plan without forbearance provisions which he had introduced at the beginning of the session. Congressman Carper moved to amend St Germain’s substitute bill by raising the recapitalization amount to $15 billion. The Carper amendment passed the Subcommittee by a vote of 23–20. (U.S. House Conduct Committee 1989, 212)
A bizarre incident immediately after the vote revealed to me how intense the
pressure was on Gray. Carper had taken the lead in delivering a subcommittee vote in favor of the $15 billion FSLIC recap. Gray approached him as soon as Carper went back to his office. Carper probably expected Gray to congratulate him. Instead, Gray blazed away about how the bill they had just passed had exit fees that were too low.
Gray feared that healthy S&Ls would convert to bank charters to avoid the costs imposed by the FSLIC recap. Gray had “lost it”: the tension had overwhelmed him.
Mary Ellen Taylor and I rushed to undo the damage. If I had been in Carper’s shoes, I would have told Gray off. Carper was clearly startled, but he said nothing. He calmed himself and quietly explained to Gray that no one wins all the battles at the same time and that he would try to help improve the exit-fee provisions. Mary Ellen and I gave Carper the Bank Board’s fulsome thanks for his efforts. Then we took Gray aside and calmed him down before he lit into another ally.
Gray aged noticeably during 1987; his hands now shook. He knew how faint were the chances of success on the FSLIC recap; he worried about how deeply he was in debt and how poor were his job prospects, given the powerful enemies he had made and the damage his reputation had suffered from attacks in the press. He had to force himself to continue, and he did.
APRIL FOOLS
The subcommittee included virtually all the members of the full House Banking Committee. The full committee would vote on the FSLIC recap the next day, April Fools’ Day. Unless something drastic changed overnight, Wright was about to suffer his first major defeat as Speaker. But that night brought a chill deluge that swept all the blossoms off the cherry trees. Barry (1989, 238–239) explains:
The vote stung Wright. That night Wright gave Jack Brooks a ride to a dinner. They talked about it. Wasn’t it a shame, Wright said, that Ed Gray would go to the newspapers and lie about him and then win? Brooks had heard all the complaints from thrift