Magazine article The Nation

What's Good for G.E

Magazine article The Nation

What's Good for G.E

Article excerpt

The hemorrhage continues. By the time you finish reading this column, another $250,000 more, if you hang on every word) will have been lost in the savings and loan scandal. Estimates for the final tally keep rising: $300 billion, $500 billion and, the farsighted say, $1 trillion. With all that money being spent on the bailout, managed by the new Resolution Trust Corporation, only the most innocent imagination would not see the potential for abuse.

The Benjamin Franklin Federal Savings Association of Houston is a case in point. It descended into conservator ship in June 1989 with about $2 billion in government guaranteed deposits. In November the securities firm of Kidder, Peabody, a contractor for the R.T.C., solicited bids for the assets and loan portfolio of a subsidiary of the thrift. The book value of the package is roughly 500 million, according to Charles Duncan, the R.T.C.'S managing agent at Benjamin Franklin. Several offers came in, and Kidder, Peabody selected Hyperion Partners to negotiate a deal.

Conflict of interest! cried a competing bidder. Hyperion had declared its intent to finance its acquisition of the portfolio with funds from the General Electric Capital Corporation, owned by General Electric, which also happens to own Kidder, Peabody. The R.T.C.'S regulations state that a conflict of interest occurs when a contract leads to the "benefit of the contractor or any related entity." John Dolan of the R.T.C. Contracts Group writes in a letter that conflict rules center on "the Contractor and not the sources of financing unless that financing is provided by a related entity! …

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