Date: 1987-08-05
Speaker: ST GERMAIN (democrat)
Chamber: H

Obviously. far more material than most Members intend to read. but there are a number of quite specific quotes that I think are important to understand about Mr. ST GERMAIN in putting in context the Wall Street Journal allegation. The Ethics Committee found in its report. and I am quoting from an official document of the House here: Representative St Germain consistently understatedby more than a million dollarson his Financial Disclosure Statements the fair market value of his five International House of Pancakes Restaurants. That is page 46. This undervaluation violated House Rule XLIV and the Ethics in Government Act of That is page 48. The committee concludes the sale of the Providence IHOP was incorrectly reported. That is page 49. The statement contained in each purchase agreement was not correct. Page 49. Representative St Germain violated House Rule XLIII. clause 4. in connection with his acceptance of transportation provided in 1980 by Florida Federal. Page 3. -In 1978. Congressman St Germain failed to disclose $20.000 in income. The Ethics Committee admonished the member to not repeat his performance. Page 44. In 1984. St Germain failed to report a $30.000 transaction in 1983. "He has never disclosed the purchase transaction * * * Counsel for the Congressman did not offer any plausible explanation for the nonreporting. This nonreporting violated House Rule XLIV and the Ethics in Government Act of 1978." Page 45. My point is this. If you read the report of the Committee on Ethics. there are reasonable grounds to suggest a pattern of behavior which makes reasonable the Wall Street Journal article. Let me carry you one stage further to put this in context so Members understand that in this case we are not even talking only about a question of ethics. I would say only a question of ethics is a pretty strong statement. but in this case it is more than just a question of the ethics of the House. I want to read briefly from a proposed statement of William Black. Deputy Director of the Federal Savings and Loan Insurance Corporation. and William Robertson. Director of the Office of Regulatory Policy Oversight and Supervison of the Federal Home Loan Bank Board. This statement was never delivered. It was prepared for a subcommittee meeting on June 9. 1987. but it was not presented. because it sets in context why the role of the chairman of the Banking Committee in carrying. if he did as alleged by the Wall Street Journal. the credit card of the savings and loan lobbyist has the importance beyond simply the ethical behavior of a single Member. These are quotes from Federal Government officers who were planning to testify: By way of overview. insider abuse and fraud are very significant contributors to thrift losses and failures. They go on to say: Combined. these two causes of losses are overwhelmingly responsible for virtually all recent failures. FSLIC growing insolvency and huge coming losses that we have already identified. In other words. the industry being overseen by the Banking Committee had at the core of its problems insider abuse and fraud. They go on to say: Too often the cases involving FSLICs largest losses have borne an uncanny resem. blance to each other. The general pattern was a state chartered association that underwent a change of control in 19821983. massive growth. adoption of a risky investment strategy. emphasizing acquisition. development and construction loans. acquisition. development and land loans. and direct investments. Underwriting was often extremely poor. Insider abuses usually present. and actual fraud was far from rare. The change of control often brought a real estate developer under the control of the thrift. For the unscrupulous devel6per. owning a thrift was a dream come true. a virtual printing press to provide money to develop his real estate. Typically. the new manager put minimal capital into the acquisition. Indeed. some changes of control were funded by overappraised real estate property without any cash infusion. They go on to say: On its surface. these problems. ADC and ADLThat is. the terms refer to acquisition. development and construction. acquisition. development and land loansOn its surface these problem ADC and ADL loans are so insane that it seems irrational for any thrift manager to engage in such practices. From some thrift managers perspectives. however. it could pay to make such loans. By booking high income. the managers could justify awarding themselves high salaries. bonuses and dividends. They also increased their reported net worth. which in turn allowed them to make still larger loans and book still larger profits. Some managers also gained from loans because they were giving money to themselves through conflicts of interest or through kickbacks from borrowers. This was a sham. The worst managed thrifts were able to report as profits the act of essentially giving away their money and making themselves insolvent. These problem loans never made any sense. The decline of the regional economy merely exacerbated losses. For example. on average the Texas 40 were insolvent on a tangible capital basis by the end of 1984. well before the steep 1986 drop in oil prices. The carnage that such risky investment and growth strategies and insider abuse and fraud have left is staggering. Virtually all FSLICs recent and pending major losses are explained by such practices. Since part of the cause of FSLIC losses has involved suspected criminal conduct. such as insider abuse and fraud. the board had more than quadrupled its number of criminal referrals in 1986 over 1985 and currently is proceeding at a pace that could well exceed that number in 1987. Now. the point I want to leave with Members is simple. If you read the statement of William Black. who was then Deputy Director of FSLIC. and William Robertson. the Director of the Office of Regulatory Policy Oversight and Supervision of the Federal Home Loan Bank Board and you read the Ethics Committee report. which does include a report on whether or not. a staff member of the Banking: Committee was calling the Federal Home Loan Bank Board and you rec- FERNAND J. ST GERMAIN may have acted imognize it is a $50 billion scandal build- properly. ing and that allegations have been Whereas a publicinterest organization remade by executive branch officers cently has requested that the Committee on a Standards of Official Conduct further invesand in addition not just allegations. tigate the conduct of Representative FlRthese are three Federal district court NAND J. ST GERMAIN. lawsuits alleging insider abuse and That is the heart of the gentlemans fraud to the tune of $350 million in resolution. I cannot respond to what one savings and loan. a savings and theolemanom Geond torwhat loan. which by the way has 97 percent gentlem n fro e avperceive of its current indebtedness insolvent. as the problems in the savings and that is. of its current outstanding. loan industry. That is not the jurisdicloans. 97 percent are noncollectible. an tion of this committee. We do not achievement which has to be a func- have anything to do with inside dealtion of systematically setting it up. lng or any of the other material the In that setting. let me just suggest to gentleman mentioned. my colleagues. and I will then yield to I cannot comment by House rules the chairman of the Ethics Commit- and committee rules and an interpretee. there is a clear Ethics Committee tive resolution by the Committee on report that suggests that the chair- Ethics on the report the gentleman man of the Banking Committee does talks about. the 1.400 page report on on occasion do things that are not ac- Mr. ST GERMAIN except to say that if cording to the rules. my colleagues read the report. the There is a powerful allegation In the report speaks for Itself. Wall Street Journal that the savings I can comment on a few things the chief lobbyist was loaning his credit gentleman mentioned. and that is to card to the chairman of the committee tell the House that the Common while he was writing the bill. Cause letter that he cites that cites a There are clear statements by the New York Wall Street Journal article. executive branch that a multibillion- is absolutely untrue. that the commitdollar scandal in savings and loan is tee touched upon but did not pursue building. certain allegations in the investigation There are lawsuits that have been of the gentlemanfrom Rhode Island. filed. and for the life of me I do not . Gentlemen and ladies. there are basee how a Member could vote not to sically four ways that the House invesask the Ethics Committee to -investi- tigates Members. Three are relevant gate. to this conversation. This does not condemn Mr. ST GER- The first way is that the committee MAIN. It does not conclude the case. It on its own initiative Can Initiate an insimply says. given a multibilliondollar vestigation. The second way. which is scandal that we know is true. given an very relevant in this case. is by a allegation by a very important publica- sworn complaint to a reasonable belief tion. is it not important for the House by any Member of this House. if they to instruct the Ethics Committee to have personal knowledge of any further investigate? wrongdoing. The third way that is relMr. Speaker. I reserve the balance of evant to our discussion today is the my time. resolution that is now before this