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TRICKLE-DOWN ECONOMICS

After two years of whistling in the dark, you'd think that Bruce Pederson and Jackie Taylor would have seen the light. You'd think they'd forget about happy endings. But even so, the two Resolution Trust Corporation whistleblowers felt their hopes rise on February 24, the day Deputy Treasury Secretary and acting RTC head Robert Altman appeared before the Senate Banking Committee. Finally, they thought, people will pay attention to the debacle at the RTC. Finally Congress will investigate all the mismanagement of the savings and loan cleanup that Pederson, Taylor and other whistleblowers have complained about for years, mismanagement that has cost the taxpayers billions of dollars.

Wrong again. The Senate's interest in S&Ls centered on one specific institution: Madison Guaranty, the savings and loan owned by James McDougal, the Clintons' Whitewater partner. And when Altman admitted he'd briefed the White House on the status of the RTC's investigation into Madison (he confessed to one such visit, but the count is now three and rising), the dam broke. For three weeks now, everyone has focused on the Whitewater spill--what the Clintons knew, when they knew it, and how two savvy lawyers could botch a relatively small matter in such a big way.

Whitewater, Whitewater, everywhere--and not a drop of ink on the real S&L scandals.

"They've taken a Piper Cub apart bolt by bolt, while three 747s are sitting on the runway and no one's looking at them," says Pederson. He should know: Three years ago he was brought to Denver to manage the RTC's regional Professional Liability Section. But in the spring of 1992, just as Pederson and Taylor, head of the Denver office, were gearing up to file negligence claims against former S&L fiduciaries--directors, officers, appraisers, lawyers, accountants--the section was reorganized, and Pederson and Taylor were sent to bureaucratic Siberia. "If they had left the PLS organization alone even as far back as February of 1992," Taylor says, "you can rest assured if there was a problem with Whitewater, it would have been taken care of. Now no one knows. They've shuffled people and cases like a deck of cards."
And these two keep coming up the jokers. Last September they and eleven other whistleblowers made their own appearance before the Senate Banking Committee. For Taylor and Pederson, this was a repeat performance; in 1992 they'd warned Congress that dismantling the PLS would result in financial disaster. Now they had other RTC veterans to back up their grievances. The testimony was devastating--but RTC administrators clearly missed the point. Within two days Altman was at the White House, briefing the Clinton administration not on the RTC's disastrous mismanagement, but on the RTC's Whitewater probe.

She and Peterson didn't know of Altman's actions at the time, Taylor says: "They all instructed us not to talk about Whitewater." Here's what everybody else was saying: In 1978, the Clintons invested at least $68,000 in an Arkansas land deal known as Whitewater Development Corporation. "We know we lost money," Hillary Clinton assured reporters in Denver Monday. "Goodness knows what you'd be saying if we made any money." Well, somebody did: Fellow Whitewater partner McDougal and Madison hosted a fundraiser for Bill before the S&L collapsed. Hillary, a partner in the Rose Law Firm, earned $2,000 a month as Madison's legal advisor; after the S&L failed, Rose was hired to do legal work for the RTC (double billing the agency in the process). Among Rose's tasks: suing an accounting firm blamed in Madison's failure.

Aside from the high profile of the players, this was hardly an unusual scenario. To find Denver's own Whitewater, you don't have to look further than the Big Six accounting firm of Deloitte & Touche, which has agreed to pay a $300 million settlement to the government for alleged negligence in connection with several failed S&Ls. One of those was Otero Savings & Loan in Colorado Springs, which collapsed in 1989 at a cost of $195 million; in 1992, the RTC filed a class action suit seeking over $200 million from Deloitte for its work with Otero.

Deloitte's lawyers posed an interesting question: If outside accountants could be held liable for the thrift's losses, why couldn't outside attorneys? For example, Holland & Hart--the law firm not only hired by the RTC to sue Deloitte, but a firm that had worked on at least six Otero loans itself. Although this conflict was pointed out repeatedly to the RTC, Holland & Hart wasn't pulled off the case until last August, one month before the scheduled trial date. The law firm continued to bill for work on the Otero job, though, adding to the more than $5 million in legal fees it's collected from the RTC over the past two years. Compared to that, the Rose Law Firm's RTC billings seem a drop in the bucket.

Madison's $60 million failure, Pederson says, "is like a couple of bad lines of credit at Silverado." And now that his division has been pulled off the job, he estimates, Texas alone has five to ten potential Silverados--billon-dollar bombs waiting to drop. But while Washington and the rest of the country obsess on Whitewater, the RTC bungles on. "It breaks my heart that this is what they keep focusing on when there are such large issues out there," says Taylor.

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