Lewis William Seidman (April 29, 1921 – May 13, 2009) was an American economist , financial commentator, and former head of the U.S. Federal Deposit Insurance Corporation , best known for his role in helping work to correct the Savings and Loan Crisis in the American financial sector from 1988 to 1991 as head of the Resolution Trust Corporation . He also worked as an economic adviser during three separate administrations of United States presidents : Gerald Ford , Ronald Reagan , and George H. W. Bush . He was lauded by both Republicans and Democrats for his work in cleaning up the frauds of the Savings and Loan disaster, but was pushed out of American government by the George H.W. Bush administration for disclosing the full extent of the crisis to the United States Congress and taxpayers.
48-472: The Resolution Trust Corporation ( RTC ) was a U.S. government -owned asset management company first run by Lewis William Seidman and charged with liquidating assets, primarily real estate -related assets such as mortgage loans , that had been assets of savings and loan associations (S&Ls) declared insolvent by the Office of Thrift Supervision (OTS) as a consequence of the savings and loan crisis of
96-450: A book value of $ 113 million and a DIV of $ 52 million, whereas the N-series average portfolio had a book value of $ 464 million and a DIV of $ 220 million. As a consequence, it required an equity investment of $ 4 to $ 9 million for investor to undertake an S-series transaction, versus $ 30 to $ 70 million for an N-series transaction. The S-series portfolio was not leveraged through
144-496: A class A certificate to the private sector investor evidencing its ownership interest in the Trust, and a class B certificate to the RTC evidencing its ownership interest. The class A certificate holder exercised those management powers typically associated with a general partner (that is, it controlled the operation of the trust), and the RTC, as the class B certificate holder, had
192-409: A number of different structures were used, all of the equity partnerships involved a private sector partner acquiring a partial interest in a pool of assets, controlling the management and sale of the assets in the pool, and making distributions to the RTC based on the RTC's retained interest. The equity partnerships allowed the RTC to participate in any gains from the portfolios. Prior to introducing
240-573: A passive interest typical of a limited partner . The class A certificate holder, on behalf of the trust, engaged an asset manager to manage and liquidate the asset pool. The asset manager was paid a servicing fee out of trust funds. Typically, the asset manager was a joint venture partner in the class A certificate holder. The asset manager used trust funds to improve, maintain and liquidate trust assets, and had day-to-day management control. The class A certificate holder exercised control over major budgetary and disposition decisions. The trust, through
288-457: A pre-determined placement agent designated by the RTC, leveraged its asset portfolio by issuing commercial mortgage-backed securities (CMBSs), the proceeds of which went to the RTC. Because of the leverage, the amount required to be paid by the class A certificate holder on account of its interest was less than it would have been if the N-Trust had been an all-equity transaction. Net cash flow
336-442: A significantly lower price if a sale is forced to occur in a shorter time period. The liquidation value may be either the result of a forced liquidation or an orderly liquidation . Either value assumes that the sale is consummated by a seller who is compelled to sell and assumes an exposure period which is less than market normal. The most common definition used by real estate appraisers is as follows The most probable price that
384-612: A sudden attack of pneumonia after an intercontinental airline flight in Albuquerque, New Mexico at the age of 88. He was interred at his ranch in Wagon Mound, New Mexico . The FDIC office complex in Arlington, VA is named for Seidman. Arizona State University named a research institute in his honor. The Seidman College of Business at Grand Valley State University also bears his name. Liquidation value Liquidation value
432-446: A total book value of $ 2 billion and DIV of $ 614 million. Under the judgments, deficiencies, and chargeoffs Program (JDC), the RTC established limited partnerships and selected private sector entities to be the general partner of each JDC Partnership. The JDC program was different from the MIF, N/S Series and Land Fund programs in that the general partner paid only a nominal price for
480-427: Is the likely price of an asset when it is allowed insufficient time to sell on the open market, thereby reducing its exposure to potential buyers. Liquidation value is typically lower than fair market value . Unlike cash or other available liquid assets, certain illiquid assets, like real estate, often require a period of several months in order to obtain their fair market value in a sale, and will generally sell for
528-920: The Federal Deposit Insurance Corporation (FDIC). In 2006, the SAIF and its sister fund for banks—the bank insurance fund (BIF)—also administered by the FDIC, were combined to form the Deposit Insurance Fund (DIF) under the provisions of the Federal Deposit Insurance Reform Act of 2005 . After initially emphasizing individual and bulk asset sales, the Resolution Trust Corporation pioneered the use of equity partnerships to help liquidate real estate and financial assets inherited from insolvent thrift institutions. While
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#1732848567337576-560: The University of Michigan 's Ross School of Business . He married a onetime University of Michigan beauty queen named Sarah "Sally" Berry—later and better known as Sally Seidman; they later had six children. He served in the United States Navy as an officer on a destroyer in the Pacific theater during World War II and won a Bronze Star . From 1950 to 1974, Seidman worked in
624-529: The community for the establishment of a public four-year university in West Michigan . Seidman later said that even though he rose to become Chairman of the FDIC, his proudest accomplishment was his role in the founding of GVSU. In 1962 , Seidman was the Republican nominee for the position of Michigan Auditor General , but was defeated by incumbent Billie S. Farnum . After Richard Nixon 's administration
672-442: The private sector . In 1978, Seidman also founded The Washington Campus , an executive education organization which began as a consortium of U.S. business schools dedicated to educating business leaders on the public policy process. Seidman was tapped again as an economic advisor, by President Ronald Reagan from 1982 to 1984. He famously feuded with Bush White House Chief of Staff John H. Sununu . He also served as Dean of
720-514: The 1980s. It also took over the insurance functions of the former Federal Home Loan Bank Board (FHLBB). Between 1989 and mid-1995, the Resolution Trust Corporation closed or otherwise resolved 747 thrifts with total assets of $ 394 billion. Its funding was provided by the Resolution Funding Corporation (REFCORP) which still exists to support the debt obligations it created for these functions. The Resolution Trust Corporation
768-585: The College of Business at Arizona State University from 1982 to 1985. In 1985, he became the chairman of the Federal Deposit Insurance Corporation and served until 1991, working extensively during the American savings and loan crisis to restore solvency to the failing savings and loan sector of American banking . He was the first chairman of the related agency, the Resolution Trust Corporation , which
816-508: The JDC partnership in a series of conveyances over time. The general partner was selected purely on the basis of perceived competence. It made payments to the RTC in the amount of one basis point (0.01%) of the book value of the assets conveyed. The general partner exercised comprehensive control in managing and resolving the assets. Proceeds typically were split 50/50 with the RTC. Operating costs (except under special circumstances) were absorbed by
864-547: The Land Fund general partner had the authority to engage in long-term development, whereas the MIFs and N/S-Series Trusts were focused on asset liquidation. The RTC conveyed to the Land Fund certain pre-identified land parcels , and non/sub-performing mortgage loans secured by land parcels. The selected general partner paid the RTC for its general partnership interest in the Land Fund. The winning bid for each Land Fund pool would determine
912-663: The Land Fund. Net cash flow from the Land Fund was distributable in proportion to the respective contributions of the general partner (25%) and RTC (75%). If and when the Land Fund partnership distributed to the RTC an amount equal to the RTC's capital investment (i.e., 75% of the implied value of the Land Fund pool), from and after such point, net cash flow would be divided on a 50/50 basis. Land Fund general partners were joint ventures between asset managers, developers and capital sources. There were three land fund programs, giving rise to 12 land fund partnerships for different land asset portfolios. These funds received 815 assets with
960-399: The MIF had been an all-equity transaction. The MIF general partner, on behalf of the MIF, engaged an asset manager (one or more entities of the MIF general partner team) to manage and liquidate the asset pool. The asset manager was paid a servicing fee out of MIF funds, and used MIF funds to improve, manage and market the assets. The asset manager was responsible for day-to-day management of
1008-399: The MIF, but the general partner controlled major budgetary and liquidation decisions. The RTC had no management role. After repayment of the RTC seller financing debt, net cash flow was divided between the RTC (as limited partner) and general partner in accordance with their respective percentage interests (the general partner had at least a 50% interest). Each of the MIF general partners
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#17328485673371056-644: The Multiple Investor Funds (MIF) program, the RTC established limited partnerships (each known as a Multiple Investor Fund) and selected private sector entities to be the general partner of each MIF. The RTC conveyed to the MIF a portfolio of assets (principally commercial non- and sub-performing mortgage loans) which were described generically, but which had not been identified at the time the MIF general partners were selected. The assets were delivered in separate pools over time, and there were separate closings for each pool. The selected general partner paid
1104-451: The N series stood for "nonperforming". For the N series, the RTC would convey to a Delaware business trust a pre-identified portfolio of assets, mostly commercial non- and sub-performing mortgage loans. Pre-qualified investor teams competitively bid for a 49% interest in the trust, and the equity for this interest was payable to the RTC by the winning bidder when it closed on the acquisition of its interest. The trust, at its creation, issued
1152-513: The RTC for its partnership interest in the assets. The price was determined by the Derived Investment Value (DIV) of the assets (an estimate of the liquidation value of assets based on a valuation formula developed by the RTC), multiplied by a percentage of DIV based on the bid of the selected general partner. The general partner paid its equity share relating to each pool at the closing on
1200-498: The accounting firm of Seidman & Seidman, which his father and uncles had founded, and served as its managing partner from 1968 to 1974. The firm later merged with another accounting entity, BDO USA, to become BDO Seidman , a nationally active accounting firm. By 1960, Seidman was a prominent business leader in Grand Rapids, and was one of the principal founders of Grand Valley State University , helping galvanize local support in
1248-414: The asset to fund development. Furthermore, a third-party developer or financing source could acquire an equity interest in the special purpose entity in exchange for services or funding. The general partner was authorized to develop the land parcels on a long-term basis, and had comprehensive authority concerning the operation of the Land Fund. Costs to improve, manage and liquidate the assets were borne by
1296-432: The assets and was selected on a beauty-contest basis, and the general partner (rather than the partnership itself) had to absorb most operating costs. The RTC would convey to the limited partnership certain judgments, deficiency actions, and charged-off indebtedness (JDCs) and other claims which typically were unsecured and considered of questionable value. The assets were not identified in advance, and were transferred to
1344-475: The end of his life, he was serving as an advisor to SecondMarket , continued his work as a CNBC financial commentator, and was also a former advisory board member to the Keating Network LLC, a company seeking to connect small and medium-sized businesses. He was, by the time of his death, a sought-after commentator and financial speaker on financial affairs worldwide. In the last year of his life, Seidman
1392-417: The equity partnership program, the RTC had engaged in outright individual and bulk sales of its asset portfolios. The pricing on certain types of assets often proved to be disappointing because the purchasers discounted heavily for unknowns regarding the assets, and to reflect uncertainty at the time regarding the real estate market. By retaining an interest in asset portfolios, the RTC was able to participate in
1440-432: The extremely strong returns being realized by portfolio investors. Additionally, the equity partnerships enabled the RTC to benefit by the management and liquidation efforts of their private sector partners, and the structure helped assure an alignment of incentives superior to that which typically exists in a principal/contractor relationship. The following is a summary description of RTC Equity Partnership Programs: Under
1488-657: The general partner, not the JDC partnership. JDC general partners consisted of asset managers and collection firms. The JDC program was adopted by the FDIC and is still in existence. Lewis William Seidman Seidman was born to a Jewish family on April 29, 1921, in Grand Rapids, Michigan , the son of Esther (Lubetsky) and Francis Edward Seidman , a founder of the accounting firm Seidman and Seidman . Seidman received his undergraduate education at Dartmouth College , his Juris Doctor degree from Harvard University , and his Master's Degree In Business Administration from
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1536-470: The implied value of the pool, and the winning bidder, at closing, would pay to the RTC 25% of the implied value. The land fund investors were given the option of contributing 25%, 30%, 35%, or 40% of the equity for commensurate interest, but all chose to contribute 25% of the equity. The Land Fund general partner could, at its discretion, transfer assets in Land Fund pools to special-purpose entities, and those entities could then borrow money collateralized by
1584-399: The investors' due diligence costs. There were nine S-series transactions, into which the RTC contributed more than 1,100 loans having a total book value of approximately $ 1 billion and a DIV of $ 466 million. The RTC purchase money loans, aggregating $ 284 million for the nine S-transactions, were all paid off within 22 months of the respective transaction closing dates (on average,
1632-527: The issuance of CMBS, although it was leveraged through a 60% RTC purchase money financing. In the N-series program where CMBS were issued, the asset managers had to be qualified by debt rating agencies (e.g., Standard & Poor's ) as a condition to the agencies' giving a rating to the CMBS. This was not necessary in the S-series program Assets in the S-series portfolios were grouped geographically, so as to reduce
1680-423: The pool. The RTC retained a limited partnership interest in the MIF. The MIF asset portfolio was leveraged by RTC-provided seller financing. The RTC offered up to 75% seller financing, and one element of the bid was the amount of seller financing required by the bidder. Because of the leverage, the amount required to be paid by the MIF general partner on account of its interest was less than it would have been if
1728-422: The purchase money loans were retired in 16 months). The RTC Land Fund program was created to enable the RTC to share in the profit from longer term recovery and development of land . Under the Land Fund program, the RTC selected private sector entities to be the general partners of 30-year term limited partnerships known as Land Funds. The Land Fund program was different from the MIF and N/S-Series programs in that
1776-505: The six N-series transaction, representing 60% of the value of N-series trust assets as determined by the competitive bid process (the value of the assets implied by the investor bids was substantially greater than the DIV values calculated by the RTC). While the original bond maturity was 10 years from the transaction, the average bond was retired in 21 months from the transaction date, and all bonds were retired within 28 months. The S-series program
1824-490: The three goals, only the protection of local markets and concerns over dumping was given a great deal of attention. The agency was slow to implement Minority and Women-owned Business (MWOB) and Affordable Housing programs. The Resolution Trust Corporation was a 501(c)(1) organization . In 1995, the Resolution Trust Corporation's duties were transferred to the Savings Association Insurance Fund (SAIF) of
1872-464: The time, being investigated at Silverado Savings And Loan . Nevertheless, Seidman's work was seen as crucial in terms of providing stability to the American banking system and helping provide a foundation for the prosperity of the 1990s in the United States, and he was given credit by members of both major parties—for instance, Sen. Charles Schumer (then a House Representative), even though Schumer
1920-445: Was a joint venture among an asset manager with experience in managing and liquidating distressed real estate assets, and a capital source. There were two MIF transactions involving more than 1,000 loans having an aggregate book value of slightly over $ 2 billion and an aggregate DIV of $ 982 million. The N-series and S-series mortgage trust programs were successor programs to the MIF program. The N-series and S-series structure
1968-621: Was a prominent Democrat and Seidman was a Republican, said that "One of the bright spots in this whole mess has been Mr. Seidman". He worked as a chief financial commentator for the CNBC network, as well as an occasional speaker at various financial conferences worldwide. In 2005, he debated former vice-president Al Gore on economic matters at The Asian Banker Summit in Singapore March 15–17, 2005. He spoke at four events in Asia from 2005 to 2007. By
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2016-581: Was created specifically to address issues arising from the savings and loan crisis, from 1989 until his retirement from active government in 1991—his ouster from the FDIC Chairman position was orchestrated by the George H.W. Bush administration, who felt Seidman's full disclosure about Savings and Loan fraud might be damaging to that administration's interests, according to the New York Times . Neil Bush was, at
2064-548: Was critical of rescuing the banks' managements and their shareholders during the Troubled Asset Relief Program , comparing the bailout with action he and his team at the Resolution Trust Corporation took during the S&;L crisis of the 1980s: "What we did, we took over the bank, nationalized it, fired the management, took out the bad assets and put a good bank back in the system." Seidman died of complications from
2112-424: Was different from that of the MIF in that the subject assets were pre-identified by the RTC (under the MIF, the specific assets had not been identified in advance of the bidding) and the interests in the asset portfolios were competitively bid on by pre-qualified investors with the highest bid winning (the RTC's process for selecting MIF general partners, in contrast, took into account non-price factors). The "N" of
2160-684: Was established in 1989 by the Financial Institutions Reform Recovery and Enforcement Act (FIRREA), and it was overhauled in 1991. In addition to privatizing, and maximizing the recovery from the disposition of, the assets of failed S&Ls, FIRREA also included three specific goals designed to channel the resources of the RTC toward particular societal groups. The goals included maximizing opportunities for minority- and women-owned contractors, maximizing availability of affordable single- and multi-family housing, and protecting local real estate and financial markets from asset dumping. Of
2208-414: Was first used to repay the CMBS debt, after which it was divided between the RTC and class A certificate holder at their respective equity percentages (51% RTC, 49% class A). There were a total of six N-series partnership transactions in which the RTC placed 2,600 loans with an approximate book value of $ 2.8 billion and a DIV of $ 1.3 billion. A total of $ 975 million of CMBS bonds were issued for
2256-416: Was similar to the N-series program, and contained the same profile of assets as the N-series transactions. The S series was designed to appeal to investors who might lack the resources necessary to undertake an N-series transaction, and differed from the N-series program in the following respects. The S-series portfolios were smaller. The "S" of S series stands for "small"; the average S-series portfolio had
2304-588: Was toppled by the Watergate scandal in 1974 and Nixon resigned from the presidency, Gerald Ford —who had attended school with Seidman—became president during a time of economic recession in America, and tapped Seidman for an economic advisory post to work on pressing economic problems (such as the choice of whether or not to bail out New York City from its pending bankruptcy —Ford later chose against doing this). Seidman served in this capacity until 1976, then returned to
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