Henry Hyde's Failed S&L
By Gary Ruskin
Last week, U.S. Representative Henry Hyde, the powerful Chairman of the House Judiciary
Committee, fumed "I'm a victim of a lawsuit that never should have been brought. I'm not
paying a nickel."
Chairman Hyde was responding to questions about his role on the board of directors of Clyde
Federal Savings and Loan Association, of which he was a member from 1981-84. Clyde S&L
was seized by regulators in 1990, and the ensuing taxpayer bailout cost $67 million. In 1993, the
Resolution Trust Corporation (RTC) brought a civil action against Clyde's board, including
Hyde, seeking damages of $17.2 million for gross negligence in mishandling the thrift.
Hyde was chairman of the Platform Committee for the 1996 Republican Convention, and is often
mentioned as a possible Speaker of the House. He also appears to be above the law. On March
5th, the federal government is expected to settle its lawsuit against Hyde and the S&L's other
directors for a piddling $850,000. Under a separate agreement, Hyde himself will not have to
pay a dime. It's a strikingly generous offer, given that U.S. District Court Judge Brian Duff -- a
former Republican colleague of Hyde's in the Illinois legislature -- wrote that "the RTC alleges
facts sufficient to sustain a claim of gross negligence."
Minutes of Clyde's board meetings show Hyde played an active role in some of Clyde's most
foolhardy adventures. Hyde approved participation in a loan for a Texas luxury beachfront
condominium project that defaulted, costing Clyde $3.7 million. Clyde had no experience in out-of-state construction loans, and it made the loan based on information provided by a loan broker
who "stood to receive a substantial fee" if the loan was approved. (The lead lender, by the way,
was Guaranty S&L, of Harrison, Arkansas -- of Whitewater fame.) Hyde also approved a risky
options trading program, and purchase of Grand Cayman Island Eurodollar securities.
The U.S. District Court refused to dismiss gross negligence claims, noting the gravity of the
RTC's charge that Clyde's directors failed to "heed regulatory criticisms as set forth in [Federal
Home Loan Bank Board] Examination reports, correspondence, and supervisory meetings."
Nevertheless, the Federal Deposit Insurance Corporation (FDIC) seems hell-bent on selling off
the Clyde case at fire-sale prices.
The FDIC plainly faces a political conflict of interest in this case. As Chairman of the House
Judiciary Committee, Henry Hyde is one of the most influential members of the United States
Congress. Chairman Hyde has jurisdiction over the judiciary and judicial proceedings, both civil
and criminal, as well as federal courts and judges. But his influence extends far beyond even
these matters -- even into the FDIC's budget.
The FDIC's conflict of interest calls into question its willingness to pursue the case against Hyde.
And the FDIC's irresolute performance in the Clyde case raises even more questions.
Why has the FDIC has proposed to settle the Clyde case for only five cents on the dollar, and --
incredibly -- without requiring any payment from Chairman Hyde? The record available in the
Clyde case provides no reason to believe that Hyde is less culpable than Clyde's other directors.
Should we conclude that the FDIC is rolling over and playing dead? If so, then what does that
say about the health and fairness of our civil justice system -- which Chairman Hyde oversees.
Has Hyde used his position as Chairman of the House Judiciary Committee to escape payment in
the civil suit against him and Clyde's other directors?
Why is the FDIC so willing to undercut key incentives that protect the taxpayers, by letting
Clyde's directors off so easily? The FDIC's collection of damages in negligence cases provides a
powerful incentive for directors of savings and loans to avoid reckless banking practices. The
cost of weakening these incentives may be extremely high to taxpayers; the S&L bailout will cost
taxpayers about $500 billion in principal and interest.
It's time for the House and Senate Banking Committees to get to work. They should find out
whether the FDIC is giving a free pass to Henry Hyde.
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Gary Ruskin is the director of the Congressional Accountability Project. He can be reached at (202) 296-2787.