It's A Family Affair

By MARGARET CARLSON WASHINGTON

The savings and loan scandal did more than bring tears to the eyes of the President's third son last week. Suddenly, through the lens of one man's life, the larger saga of an industry gone corrupt snapped into sharp resolution. The grief that crossed the fresh, Boy Scout face of Neil Bush struck a human chord of sympathy. But it also created a moment of clarity, defining the situation.

It was not thugs in ski masks who drained billions and billions of dollars from the nation's S&Ls. It was hundreds of (mostly) respected citizens in pinstripes who, seeing that deregulation had left the door to the vault wide open, walked in and grabbed what they could -- or at the very least allowed others to do so.

With the release of government documents spelling out the conflict-of- interes t allegations, and reports that the Federal Deposit Insurance Corporation (FDIC) might file a $200 million civil suit against him and the other officers and directors of Denver's Silverado Banking, Savings and Loan Association, Neil Bush replaced Charles Keating as the S&L poster boy. His father interrupted his final press conference at the Houston economic summit to defend the besieged 35-year-old Denver businessman. "What father wouldn't express a certain confidence in the honor of his son?" asked the President as his voice cracked with emotion. "If the system finds he's done something wrong, he will be the first to step up and do what's right."

Neil Bush may be the Velcro that Democrats have needed to attach blame for the S&L debacle to the President. Despite being in charge when the multibillion-dollar casino was opened, Republicans have been feigning shock -- shock! -- that any gambling was going on at all. The Administration has belatedly been making a great show of prosecuting the most egregious offenders. Just last week the government charged high-profile Dallas thrift owner Edwin McBirney III with 17 counts of bank fraud. Cleaning up the mess at his Sunbelt Savings Association of Texas, which was taken over by regulators in 1986, has so far cost $2 billion.

But while the Administration was taking credit for nailing McBirney, it was attracting criticism for allowing yet another set of dealmakers to get rich. Last week Senate judiciary subcommittee chairman Howard Metzenbaum called on the government to tear up a deal made by M. Danny Wall, former chairman of the Federal Home Loan Bank Board, with Arizona insurance executive James Fail. In 1988 Wall allowed Fail to acquire 15 insolvent Texas S&Ls in exchange for $1,000 in cash and $70 million in borrowed money, and threw in $1.85 billion to cover the liabilities of the bankrupt thrifts. Fail in 1976 had been indicted for securities fraud in Alabama. Though the charge against Fail was dropped, a company he controlled pleaded guilty to fraud. According to federal regulations, that should have disqualified Fail.

At a G.O.P. convention in Chicago last week, Edward Rollins, co-chairman of the Republican Congressional Campaign Committee, described former Speaker Jim Wright, majority whip Tony Coelho and Congressman Fernand St. Germain, all of whom were forced out of the House because of their dealings with thrift operators, as "the Three Stooges of the S&L crisis." Democratic National Committee chairman Ron Brown shot back that Republicans can't escape the fact that "George Bush, Ronald Reagan and their high-roller friends ran the government, designed the S&L policy and handpicked the people that gutted the oversight agencies. They are now being forced to take responsibility for the greatest rip-off in American history."

Both parties have it right. The thrift industry's largesse was bipartisan, going to anyone in power of either political persuasion in hopes that no one would stop the party made possible by deregulation. When Common Cause compiled a list of contributions by the thrift industry to public officials, two of the top five Senate recipients proved to be Republicans (Pete Wilson of California and Alfonse D'Amato of New York) and three Democrats (Don Riegle of Michigan, Lloyd Bentsen of Texas and Alan Cranston of California).

The equal-opportunity $11 million that the thrifts showered on politicians turned out to be a wise investment. Even after the cost of bailing out thrifts (now estimated at $500 billion over 40 years) became apparent, the Republican White House and the Democratic Congress both had a stake in treating the S&L debacle as an accident of the marketplace. It was in fact the work of cash-hungry politicians, inept regulators and high-flying owners who used government-insured deposits to finance wildly speculative investments, corporate jets, hunting lodges and luxury yachts.

But the charges against Neil Bush are helping to make a scandal that the public had difficulty comprehending a bit more understandable. With the disclosure that Bush and the Silverado board approved loans to a Bush business partner that resulted in $45 million in losses, taxpayers are beginning to grasp an infuriating fact: it will cost every American man, woman and child $2,000 to pay for a decade-long orgy to which very few of them were invited. At last there was a human face that seemed to symbolize the scandal and how it had crept into every corner of the government, including the President's family.

With so much pent-up fury crashing over him, Neil Bush's lonely offensive last week to salvage his name seemed a lost cause. His father calls Neil "the most sensitive" of his four sons and one daughter. His poor performance as a student went unexplained until it was discovered he was mildly dyslexic. Though a high school guidance counselor told his parents that Neil would never get to college and shouldn't bother trying, Barbara Bush was undaunted, tutoring him herself and dragging him to special classes. Eventually, Bush earned an M.B.A. at Tulane. But Bush family friends say he never lost his naivete.

Neil ignored the possibility that the high rollers of Denver were seeking him out for something other than his financial experience; at 30 he had very little. It did not take long for Bill Walters and Kenneth Good to embrace him after he struck out for Denver in 1980, almost exactly as his father had traveled to West Texas to seek his fortune 32 years before. "I didn't have a red Studebaker," Neil says, "but I wanted to be in the oil business."

He went to work for the Amoco Production Co. but within two years founded JNB Exploration Co. Walters invested $150,000 in JNB, about half the money Bush needed to get started, and received a limited 6.25% interest that allocated 19.5% of JNB's pretax profits to him. There never were any. Good bought a 25% limited partnership in 1983 for $10,000. The next year, Good lent Bush $100,000 to play in the commodities market with the understanding that he would not have to repay it if the investment went belly-up. Bush admits that was an "incredibly sweet deal." Over the next six years, JNB sold shares in 28 wells but did little more than cover costs and salaries. Says Neil: "I was not a high-rolling oilman."

Despite his lack of success as a wildcatter, Bush became an outside director of Silverado in 1985. Although he says the officers and other directors of the bank were aware of his connections to Walters and Good, the knowledge seems to have been spotty. The Office of Thrift Supervision has accused Bush of "one of the worst kinds of conflict of interest" for not disclosing that he would benefit from extending a $900,000 line of credit to Good for an Argentine oil- exploration deal. Bush argues -- and has documents to corroborate the claim -- that everyone knew of the two men's business connections and that the line of credit was simply a way of dealing with the Argentine bureaucracy and was never intended to be exercised.

OTS charges a second conflict-of-interest violation when Good in 1986 asked the board to restructure $14 million in loans on troubled real estate projects. According to the agency, Bush should have told the board that Good had just signed an agreement with JNB contemplating a further cash infusion of $3 million. Silverado lost at least $13 million on the restructuring. Bush argues in response that the directors of Silverado knew more about Good's liquidity than he did. The OTS also cites Bush for not abstaining from voting on transactions involving Walters. But Bush claims the law did not require him to.

Bush's effort to fight back could be costly and ultimately futile since the regulators' diligence from this point on may be judged by how effectively they handle the case against the President's son. His comment that in cities like Denver "everybody has relationships, everybody knows everybody" only adds to the image of insider deals made with government guarantees that privatized profits and socialized losses. Bush must answer the OTS charges at a Sept. 25 administrative hearing in Denver.

While he has a credible defense -- a combination of selective prosecution and sufficient, if not total disclosure -- his father and the Republican Party may wish he had cut a deal and signed the cease-and-desist order when the OTS was willing. With all the publicity surrounding young Bush, the FDIC may feel pressure to push its suit to partially recover from the directors and officers of Silverado the $1 billion loss to taxpayers. On Friday Democratic members of the House Judiciary Committee asked the Justice Department to appoint a special prosecutor to handle the Silverado case; but at least one of the members, Edward F. Feighan of Ohio, abruptly withdrew from the effort after G.O.P. leaders threatened to seek the appointment of another special prosecutor to investigate the actions of former Democratic leaders.

Even if Neil Bush eventually clears his name, he will be crushed by legal fees. After his sobering week, there remained an air of unreality about him. As he boasted of getting down to fighting weight, he pondered a new and ironic goal: running for Congress.

With reporting by Gisela Bolte/Washington and Michael Duffy/Denver