The chairman of the Federal Home Loan Bank Board, ankle-deep in rumors that he would announce his resignation, stood at a lectern in Dallas last November and looked across an audience of the thrift industry's top executives.
Not only were many in the crowd expecting Edwin J. Gray to step down as chief regulator of the nation's 3,200 savings and loans, but the controversial, chain-smoking chairman would have been the first to admit that many staring up at him that night had crossed their fingers that he would.
Benign rumor said Gray wanted to return to his native California. The more biting said he was buckling to pressure from the White House, Congress and S&L executives rankled by his strategy for steering the thrift industry through its most turbulent period since the Depression.
"I'm the one [whose resignation] you've been reading about," Gray, in a recent interview, recalled telling the crowd. "I hope none of you hold your breath. It may be deleterious to your health." Then, he gave his umpteenth speech warning the industry of its woes. For the umpteenth time, he said, he got a response that ranged from cool to hostile.
Six months later, many S&L analysts and executives agree that while serious problems remain for the nation's S&Ls, pressure on the industry -- and Ed Gray -- is easing, at least for now.
The industry still faces record numbers of failures for the next several years, a situation that threatens to bankrupt the federal fund that insures deposits at thrift institutions.
But Gray said that in recent months, largely with the help of Treasury and the realization by industry that the cost of closing sick thrifts grows with each day's delay, he's suddenly making headway toward getting new laws and rules to solve the crisis. That was clear last week when Gray and Treasury officials asked Congress to bless an industry-backed blueprint to shore up the insurance fund.
The Federal Home Loan Bank Board expects that it will have to rescue at least 216 ailing S&Ls in the next three years, at a cost that could reach $25 billion. The auditing arm of Congress estimates that hundreds of others are weak. Even so, nearly everyone agrees that 1,900 S&Ls, two-thirds of the industry, look good and are getting stronger.
As the outlook for the insurance fund and the bulk of the industry improves, so do Gray's prospects for completing his remaining 14 months in office unfettered by much of the pressure to resign that has dogged him since he took charge three years ago.
Gone, Gray said, are hints from industry executives, who didn't like rules intended to rein in risk takers, that he could have a top-paying spot in a major S&L if only he would leave the bank board. Gone, too, are the sticks, which the industry used when carrots failed.
"I was warned . . . by some in the industry . . . that my career could be jeopardized, my future career could be jeopardized, that is to say that I would make so many people unhappy that where would I find a job? That kind of thing," Gray said.
But when Gray said his job is easier to perform, he quickly added, "That does not signal the end of controversy. [Mine is] a lonely position. Very lonely. I mean, I can't tell you how absolutely lonely it is.
"But it is much less lonely than it was. There is a light at the end of the tunnel," he said.
As head of an agency created 54 years ago to promote home ownership and to insure the safety of S&L deposits, the former newspaper reporter and public relations executive for Ronald Reagan is a focal point for the most intense pressure the agency ever has witnessed.
"I've been the only chairman to have ever had his entire tenure devoted to this new deregulated environment," said the 50-year-old Gray, who often sports gold cufflinks bearing the emblem of the 12 regional Federal Home Loan Banks, which the bank board oversees.
Gray has a reputation as a tireless worker who often toils well into the night and writes his own speeches. He is very proud of his achievements.
On the walls of his office are framed copies of newspaper articles announcing his nomination as bank board chairman and his warnings to the high-risk takers among S&L executives.
The chairman's resume lists his distinction as valedictorian of his high school class in 1953 side by side with the years he later spent as public relations director for Reagan, first when Reagan was governor of California and then when he became president. It also says that Gray served a stint as public relations director for California's largest telephone company.
For all his experience in public relations, Gray has found that creating a good image for the bank board is a trying task. Like a Rodney Dangerfield of the thrift industry, Gray has had difficulty getting respect.
Critics in industry, where the greatest opposition to Gray rests, have said he is trying to manage a situtation that is over his head, that he doesn't understand S&Ls and that he backs rules that are contrary to good business.
They have accused Gray of eroding public confidence in the S&L system by stating problems too openly and of failing to understand that favorable conditions in the market will let most problem S&Ls outgrow their financial plight without federal help.
At the same time, other critics have said Gray is too easily influenced by the S&L industry or that he favors certain sectors of it, like the larger California thrifts, and hasn't taken a firm enough hand to control risky growth or to shut failed thrifts.
"The bank board has always been tied to the industry, not just now but since it was founded," said Peter O. Stearns, former director of the bank board's deposit insurance division. "That's the problem."
Gray defended himself and the bank board from such attacks, but conceded it is impossible to get much done without industry's blessing.
"You've got to get the industry," he said. "I mean, everybody in Washington understands. It's not only the bank board . Do you expect the comptroller of the currency to possibly [get] legislation passed for banks if the American Bankers Association just totally opposed it? No. You couldn't."
Under Gray's leadership, the bank board has taken many steps to tighten the industry and shore up the insurance fund. The board has slowed the rise of direct investment in risky projects, and two weeks ago it began moving the industry back to mainstream accounting standards.
But Gray said that, largely because of industry opposition, he has been forced to back away from some safequards he felt were essential, including limitations on what state-chartered, federally insured institutions can do.
What has eased pressure now for the first time since 1980, Gray and S&L leaders say, is recognition that a slice of the industry, though small, poses problems so severe they are eroding public confidence in all S&Ls and threatening to bankrupt the Federal Savings and Loan Insurance Corp., the bank board fund that insures thrift deposits up to $100,000.
Gray said the thrift industry, once sleepy and profitable, is beginning to emerge from a storm that began with inflation and banking deregulation in the early 1980s and grew into a problem of loan defaults as interest rates fell and the value of land underlying many borrowings tumbled.
Acknowledgment of the S&L plight hardly came willingly. Gray said he has had to drag many S&L executives, kicking and screaming, to the understanding that confidence in the whole industry could be shaken by a few of its sick members.
Gray began to grapple with the S&Ls' woes in 1981 and 1982, when as a top White House aide he worked with Congress to relax S&L bookkeeping rules. The intent was to keep many ailing institutions afloat because shutting them all at once would have put the federal deposit fund into bankruptcy.
But, Gray said, when he crossed the street from the White House to become chief of the bank board a year later, many S&Ls had mistaken the emergency rule as a signal they could become commercial banks or that regulation was gone.
"There was this mentality that all of a sudden anybody could do anything they wanted and they could grow as fast as they wanted, excessively, improperly," Gray said. "Which happened. Which happened."
The result was an increase in risky investments using money raised "on the deposit guarantee" of U.S. taxpayers, Gray said. That in turn created what he calls a "thrift welfare system" of deposit insurance, where safe S&Ls pay the same premium as risky S&Ls, literally supporting bad habits of neighbors.
Gray was dubbed the "reregulator" by S&L leaders who were annoyed by his attempt to curb risky investments far afield from home loans -- investments that included fast-food stands, mushroom farms, horse stud farms and tire shredding factories. But Gray's worries often proved well-founded.
In early 1985, for example, Gray was fighting Butterfield Savings & Loan in Santa Ana, Calif., for its strategy of fast growth through investments that included a Wendy's hamburger franchise. Six months later the bank board had to seize the S&L, whose liabilities exceeded assets by $10 million.
The industry has viewed such cases as the exception, however, not the rule. Gray said that S&L executives often buttonhole him after speeches to say, " 'Ed, everything's gonna be all right. Relax. Things have always worked out before and they will always work out in the future.' "
"But that's not necessarily true," Gray said he tells them. "You in the industry and I as a regulator have to come to grips with this problem because Congress is not going to act unless there is sufficient support."
Gray said the industry began to "wake up" to its problem in February 1985 when the bank board imposed a special assessment on federally insured thrifts.
"We simply had to have the money," Gray said. "You could talk to the industry, you could warn them. . . . But when everybody in this group insurance plan had to start paying for the sins of the daredevils and high-flyers, then they began to get the message."
But he said the real catalyst came last fall, when Undersecretary of the Treasury George Gould took a direct hand in devising the plan that was submitted to Congress last week to give the S&L insurance fund as much as $15 billion in new funding it needs to handle anticipated failures.
Gould, who has helped coordinate policy among other financial regulators and is regarded as a pragmatist rather than a political ideologue, helped sway Congress and industry.
Gray for years has begged Congress for new money for the bank board's insurance fund. Just 12 months ago, Gray said, the Treasury was so preoccupied with issues other than the S&L crisis and Congress was so divided, the industry had little problem lobbying to trounce most bank board proposals.
The plan for the insurance fund, if passed, will remedy the bank board's major headache -- for now -- leaving Gray free to fight about how fast and in what areas S&Ls should be allowed to grow.
Gray has held many positions in the S&L industry and made many friends there. As federal regulator he also has made many foes. But he said he is confident of continued backing from Reagan, who appointed him to the chairmanship.
Gray is proud of his nearly 20 years of service to Reagan and likes to show off a poster-size picture of himself with Reagan and Bush that he blew up from a snapshot. The picture hangs in his office.
Yet, he finds himself at odds sometimes with the deregulation philosophy of the administration. A White House task force has reaffirmed the need for a thrift industry, but several key banking regulators appointed by Reagan favor relaxing barriers between industries.
Gray said he will do whatever the law says, and that it now requires that he preserve the thrift industry's legally mandated purpose of providing home loans. But he also has been forced to tear down product and geographic barriers to entice healthy institutions to buy ailing ones.
Gray has had his share of problems apart from record S&L failures. His chief of staff, Shannon Fairbanks, sought a $500,000 home loan this year with mailgrams signed -- she says inadvertently -- with her official title.
A House committee accused the bank board's former chief counsel, Norman H. Raiden, of signing documents affecting a Beverly Hills S&L he once represented. Raiden, who has rejoined the law firm representing the S&L, said none of the documents he signed involved issues he handled at the law firm.
Gray also gained attention by spending $47,254 to renovate his office and reception area, including $900 for a dining room set, $2,000 for carpeting, $3,700 for a new door to his kitchen, $7,950 for a security door near his office and $900 for gold-leaf lettering on doors.
But Gray's real battles have been fought attempting to increase supervision of risk takers and to keep the thrift industry distinct from commercial and consumer banking.
He said he got "heavy" pressure behind the scenes from members of Congress and industry to kill many proposals to tighten supervision. He also was blamed for inaction. In March, Rep. Stan Parris (R-Va.) called for Gray's resignation.
Gray has not been without support, however. After the Dallas speech last fall, for example, he received two letters he still keeps handy.
"With regard to the greased rail that some folks in the administration, and elsewhere, are trying to build under you, please know that I remain among your very strong supporters," wrote Rep. Henry B. Gonzalez, a Democrat from Texas, where some of the strongest industry criticism of Gray has come.
Paul A. Volcker, chairman of the Federal Reserve Board, wrote, "I realize your regulatory and supervisory initiatives don't necessarily win popularity contests, . . . but I also know that a lot of people join me in great respect for the job you are trying to do in most difficult circumstances."
Gray often has been praised publicly by the chairmen of the House and Senate banking committees for his persistence in warning of the S&L industry's plight. But supporters in Congress in private also bemoan what they say often are mixed signals from Gray.
For example, Gray has chastised the General Accounting Office, the auditing arm of Congress, for making the same warnings.
Tired of the thrashing, the GAO general government director, William J. Anderson, sent a letter April 4 to Gray, with copies to Congress, that said, "We fail to understand the animosity of your comments . . . particularly given your own agreement that our facts are correct and the similarity between our estimates and yours on the size and potential resolution costs of the problem."
Such wrangling troubles Gray by day, but he said he does not lie awake seething over it. "There are periods of great frustration," he said. "These moments are ameliorated very substantially by a good night's sleep."ost