If you want to know the difference between the way the real world manages money and the way the federal government manages money, spend a few minutes with Howard Marks, one of the nation's leading junkmeisters.
Marks, who runs a $2.5 billion junk and convertible bond portfolio for Trust Company of the West, a Los Angeles money-management company, says he doesn't worry about being outsmarted by the people who buy the junk he's selling. "Whenever I sell something, I expect the buyer to make money," he says. "Anyone who doesn't expect the buyer to make money thinks that every time he sells, he's selling at the height of the market, and anybody who thinks he can do that day in and day out is a fool."
Marks, who emphasizes that he's talking about markets, not criticizing the feds, takes his gains or losses and moves on. Contrast that with the way the Office of Thrift Supervision is unloading the assets of dead and dying S&Ls -- or, rather, not unloading them.
In particular, let's look at an S&L that will be back in the news any day now: Columbia Savings & Loan of Beverly Hills, Calif.
Columbia is infamous for having the biggest junk bond portfolio of any S&L in the country. For a while, this made Columbia one of the richest institutions in the country, and its president, Thomas Spiegel, was lauded as a genius. Now, Columbia is dog meat, and Spiegel has become a financial leper.
The question isn't whether Columbia is solvent; it's hopelessly broke. The only question is whether its losses will put it in the elite group of S&Ls that have cost the taxpayers more than $1 billion.
The bulk of that loss obviously was caused by Spiegel. But a good part of the loss can be laid at the doorstep of OTS Chairman Timothy Ryan and his band of backside-coverers. They bungled the proposed sale of Columbia's junk bonds last summer, and are likely to bungle it again by rejecting the current round of bids for the securities.
Why do I predict that the regulators will turn down the bids -- which, as I write this, haven't yet been submitted? Because the new bids will be lower than before, and accepting them would cause people to question what Ryan and his crew did last summer. And that's not the kind of thing a savvy bureaucrat does.
The original proposal for the $3 billion Columbia junk bond transaction called for the buyer to put up only 10 percent cash and buy the rest with a promissory note. The OTS spent weeks pondering whether the deal was acceptable. During that time, July passed, August began, Saddam Hussein invaded Kuwait, the junk market crashed and the buyer walked.
The market value of Columbia's bonds is now at least half a billion dollars below what it was in July. This means that the bids will probably be in the $2.1 billion-to-$2.4 billion range.
So if the OTS takes one of these bids, someone is likely to ask why a $3 billion bid in July was bad but a $2.4 billion bid in January is good. An honest answer from the OTS would be, "We made a mistake in July."
These are words you hear from the Howard Markses and Tom Spiegels of the world, but rarely from the Tim Ryans.
It will be much easier for the OTS to indignantly announce that the bids for Columbia's bonds don't provide value for taxpayers, turn the bids down, take over Columbia, toss Columbia's junk portfolio into the pile of trash cluttering up the government's books, and so obscure things that no one outside the government -- or maybe even in it -- will know what's going on.
This, by the way, is strictly my own prognostication. Columbia and Spiegel declined to comment. An OTS public relations man read me a statement that I interpret like this: The agency took a long time to reach a decision last year because this was the first deal of its kind, but now that there's a policy to handle such transactions, it will make a decision more quickly.
As a taxpayer, I hope that Ryan takes one of the bids, sells Columbia's bonds and moves on to the next set of problems. But I sense that the game now is to duck from taking any action and blame Tom Spiegel for everything.
Given the fact that the world is full of publicity-hungry politicians and scandal-mongering journalists, you can see why the Tim Ryans of the world try to keep their heads down.
You can't be criticized for doing nothing, even if it's costly, and you can get murdered for doing something, even if it's the right thing. But if Timothy Ryan sells Columbia's junk, it would be a good deal, and a good symbol of courage.
The proposed sale, by the way, bears no resemblance to the way the government sold S&Ls to Ronald Perelman and Robert Bass, the billionaires.
The problem isn't that Perelman and Bass made fortunes. The problem is that the government didn't get fair value because M. Danny Wall, Ryan's predecessor, set up rules that effectively excluded most bidders. He did that to pretend that the S&L deposit insurance fund didn't need a taxpayer bailout.
Which brings us back to Howard Marks and the idea that it's wise to expect the people who buy what you sell to make money.
There's nothing wrong with buyers making good profits off the government's sales of S&L assets, provided that the government gets fair value for them. The sooner we accept that, the sooner we can take our losses and move on. Which is what we ought to do.
Allan Sloan is a columnist for Newsday in New York.