Court Decision Negating Goodwill Gives Government License to Renege

By Reznick, Allan E.; Segall, Mark B. | American Banker, February 8, 1994 | Go to article overview
Save to active project

Court Decision Negating Goodwill Gives Government License to Renege


Reznick, Allan E., Segall, Mark B., American Banker


In the latest decision arising out of Winstar Corp. v. United States, the Federal Court of Appeals for the Ninth Circuit ruled that the government is essentially free to legislate or regulate away its obligations.

If this decision stands, any private party doing business with the government will try to charge the government a hefty premium for that privilege - a premium U.S. taxpayers cannot afford.

Thanks to the Winstar decision, every time an individual or private enterprise enters into a commercial arrangement with the government, it cannot be certain if it is contracting with Dr. Jekyll or Mr. Hyde.

Changing the Rules

On one hand, the government seeks to have the private party rely on the government's integrity as a buyer or seller; on the other, the deal struck between the parties is vulnerable to the government's regulatory or legislative powers.

In Winstar, the ninth circuit concluded that when the government contracts with a private party, the relationship is somewhat similar to an agreement between private parties in which each accepts the risk of a change in law - as if a private party has the same ability as the government to control those changes!

As an example of the consequences of this decision, imagine that the government is selling used cars. To induce you to purchase a fleet of used cars, the government relaxes emission standards.

Then, after you purchase the fleet, the government enacts higher emissions standards and prohibits you from using the cars. Naturally, seeing this as a simple case of breach of contract, you sue the government and expect to win.

Briefly, the case involves the acquisitions by Winstar Corp., Statesman Savings Holding Corp., and their partners, and Glendale Federal Bank of failed savings and loan institutions during the 1980s.

To induce these purchasers to acquire the failing S&Ls, the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corp. agreed to permit each purchaser to include in its capital base certain intangible assets known as "supervisory goodwill."

In return for this accounting treatment, each purchaser contributed millions of dollars of its own resources to the failed thrifts, and assumed millions more in liabilities.

Had the government not permitted the use of supervisory goodwill, it would have been forced to take over the failed S&Ls and assume all of their outstanding obligations, at a significantly higher cost to taxpayers.

Goodwill Eliminated

In 1989, several years after each of these deals was consummated, Congress - in an effort to deflect criticism regarding its involvement in a mounting S&L crisis- passed the Financial Institutions Reform, Recovery, and Enforcement Act.

In addition to launching a clumsy and perilous effort to upgrade the quality of the thrifts' assets, the law also effectively eliminated supervisory goodwill.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Court Decision Negating Goodwill Gives Government License to Renege
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.