The Savings and Loan Crisis – Video Transcript

Male Narrator (00:11):
In the early eighties, the Texas economy was a steamroller that wouldn’t be stopped, until 1986 when the bottom fell out. This financial depression was caused by over-building and speculation that caused real estate prices to plunge as much as 60%. The dramatic drop in oil prices, retroactive changes in the tax laws, and the collapse of the savings and loan system.

Interviewer (00:41):
Let me tell you that this man you’re looking at now in 1985 had 60,000 apartment units.

Craig Hall (00:46):
That’s correct.

Interviewer (00:46):
Controlled $3.5 billion in assets.

Craig Hall (00:51):
Very, very… Actual numbers. Yeah.

Interviewer (00:53):
Chokes you up when you think about it. And turned around one day and…

Craig Hall (00:56):
Well, we saw in early January, 1986, the whole world changed in Texas. It really started before that, and we went through a very tough few years here and a lot of people in the country don’t realize how bad Texas was.

Ron Berlin (01:09):
Craig was one of the first people in the United States, basically, to come out and say there was a problem.

Dick Hyman (01:17):
He’d raised his hand really early and basically said, “Look, we’re going to have major problems as a result of this new legislation as a result of overbuilding, is about of lax, underwriting standards in the S and L industry.” People didn’t really like him for that.

Craig Hall (01:33):
January 10th of 1986, I wrote a letter to our 10,000 investors.

Don Braun (01:42):
Classically Craig, it’s just, we got to be transparent. We got to tell everybody what’s going on.

Craig Hall (01:47):
I got a call from Steve Brown from the Dallas Morning News who said, “Hey, I got a copy of this letter you wrote. I’d like to come meet you and talk to you about it.” I was always very open to the press. In the interview I said, “I think that we may be facing $600 million or so of mortgages that we need to restructure,” and that I think the whole savings loan industry is going to be facing serious problems. The next morning, I opened the Dallas Morning News and the cover of the newspaper says, “Hall may default on $600 million,” or something like that. It was not a complimentary title. That led to a firestorm that didn’t stop for years.

Don Braun (02:27):
I remember picking up the Wall Street Journal. There we are on the left side, which is a major story side, of the front page of the Wall Street Journal. Front and center, here’s Hall. Hall’s got a problem and it really made it sound like it was really our isolated problem. The industry was sound and solid, when anything could be farther from the truth at that time. We were the canary in the coal mine.

Craig Hall (02:56):
I had people in my corner, but I had a whole lot of people who just thought it was impossible. I remember one article talking about, Craig Hall’s just moving around the deck chairs on the Titanic and his company will never make it.

Male Narrator (03:13):
Once at the pinnacle of success, Craig Hall guided his company to safety while others crashed.

Interviewer (03:19):
Why did you not go under like everybody else went under?

Craig Hall (03:22):
Well-

Interviewer (03:22):
Not everybody went under, but most did. Well, that kind of figures anyway.

Craig Hall (03:26):
Well first of all, financially is one thing. I think surviving is a matter of psychologically as well as financially, and I was fortunate and I still have problems. I’m not over all the problems. No one in the real estate business is. But if you are honest and straightforward and you try to deal with them, things usually work out.

Interviewer (03:44):
You had a very good track record of making a great deal of money for a lot of people.

Craig Hall (03:48):
I did.

Interviewer (03:49):
That’s how you got to where you were. All of a sudden you had to pick up the phone and say to those people, “Excuse me, but…”

Craig Hall (03:55):
That’s right, and it was a tremendous personal struggle. I went through a depression, personally. I went through a lot trying to do what was right for investors and our lenders, and it’s been a total turning upside down of life.

Don Braun (04:09):
I knew, personally, how difficult it was for him in the sense of, because I know he had been advised much earlier in the kind of workout period that maybe the best thing to do, Craig, is for you to file personal bankruptcy, get this all behind you quickly, cleanly, and you can start again. And I know how kind of vehemently he rejected that as sort of not the right thing to do.

Ron Berlin (04:34):
People knew we were trying our hardest, we were struggling to deal with the change in laws, and communication was the biggest item that we could give them in terms of letting them know at all times where they stood, what it meant, even though the news was bad.

Craig Hall (04:53):
As the partnerships had financial difficulties, we tried to get lenders to restructure loans. One of the things we did to help encourage lenders was we would put more money in.
Dick Hyman (05:08):
Craig funneled almost all of his own money, money he’d made over the years, back into these properties.

Craig Hall (05:13):
We had no legal obligation, but we had a moral obligation. The investors were extremely gracious and very supportive of us. I used to keep books of letters. I had over 1,000 letters from investors giving me encouragement, and I used to read those a lot when things were pretty rough and a tough time, and I think it helped me, I think it helped others in our company, to know that people were grateful for what we were trying to do.

(05:50):
When we had to shrink and let people go, that was one of the hardest parts of my career.

Mark Blocher (05:56):
Not only was it horrible trying to deal with the stress of all these modifications, you had to deal with all your friends being laid off.

Don Braun (06:05):
It was really a painful process, really a painful process.

Suzie Ebbing (06:08):
There was a lot of empathy, and that started from the top down. I probably wrote about 50 letters of recommendation. But here’s something really awesome; Craig signed every one and added personal notes to people.

Tom Jahnke (06:23):
So I think that helped, going above and beyond what you normally get from an employer.

Suzie Ebbing (06:28):
We closed everything, and including myself. I was laid off. I knew I had the tools to offer another company and was not concerned with the future. More sad. We lost a family. We lost a way of life.

Male Narrator (06:49):
After the severe decline in real estate values, Hall Financial Group restructured more than $1.5 billion of debt with the help of its lenders. Overhead was cut by more than half, from over $40 million to $17 million a year. The company loaned $145 million to help the partnerships meet operating needs in restructured loan terms. Also, the partnerships received an additional $44 million from existing investors.

Ron Berlin (07:17):
Those dark days are what really set Craig apart from others. Being able to face those adversities and not back away, not run away, and not take the easy road out, but deal with them directly.

Mark Depker (07:33):
We could have shut out the lights many times in the eighties, and he’s not a quitter and his creative capabilities are just off the chart. He would tell the attorneys how to handle the legal cases, the bankruptcies. He was such a student of every aspect of the business. Couldn’t handle maintenance, though. That’s one area that I beat him at that game.

Craig Hall (08:06):
Right at the end of that terrible time, something pretty wonderful happened.

Kathryn Hall (08:10):
I was running, at the time, for mayor of Dallas. Anne Richards, who was governor and running for reelection, had said to me, “There’s this guy and I think you should talk to him about contributing to your campaign. And his name is Craig Hall, and by the way, he’s cute.” I called and I said on the phone, “This is Kathryn Kane,” my name at the time, “and I’d like to talk to you about my race for mayor.” And Craig said, “Oh, I’d like to talk to you about that and other things.” I thought, other things? Okay.

Craig Hall (08:51):
When she came into my office, she looked every bit the part of a future mayor, just a charming, wonderful person. So how can you not be impressed? Not to mention she’s beautiful, so it all works.

Kathryn Hall (09:05):
We walked back into his office and he was just delightful, and he was so young, because everybody else I had talked to about the campaign was an old guy. I said, “I’d like to talk to you about my campaign.” And he says, “Well, what’s the maximum that you can take?” And I said it would be $5,000. I hadn’t ever had that question before. He says, “Okay, fine. I’ll give.” I thought, wait a minute? Okay, I made the sale. Now what? And then he said, “Would you like to go to lunch?” And I said, “Sure.”

Female Narrator (09:38):
After a few dates, Craig and Kathryn decided they were going to build a life together. It was great timing for Craig, because although Hall Financial had miraculously survived the Texas crash, there were still more challenges ahead. During the savings and loans crisis, virtually all SNLs in Texas were taken over by the Resolution Trust Corporation. The RTC had been created by the government to manage the crisis. Resource Savings, one of the two SNLs owned by Hall, was taken over by the RTC in 1989. Three years later, the government filed a lawsuit against Craig and other directors accusing them of mismanagement of Resource Savings.

Craig Hall (10:22):
And they sued us on the exact last day of the statute of limitations.

Don Braun (10:26):
The government is hot on people’s trails and they’re just looking for scalps. All of a sudden, this lawsuit, after all of those years, was devastating to me, and I’m sure it was some multiple of that to Craig because it was his name, it was his world.

Craig Hall (10:41):
I don’t mean to pretend like I’m a perfect guy. I made lots of mistakes, but I never made a loan to someone because they were making a loan to me, and it was a quid pro quo. That’s what put a lot of people in jail.

Dick Hyman (10:59):
He went into default, like millions of other borrowers did at the time. But given his prominence, the RTC tried to make an example out of him.

Craig Hall (11:09):
They went into federal district court in Dallas to Judge Buck Myer’s courtroom and they said, at 4:45 in the afternoon, “We’re suing this guy Craig Hall, and here’s an order we want you to sign to take control of all of his assets.” The judge said to them, “Does Craig Hall know about this? Have you informed his lawyers?” And they said, “No, we have not.” The judge said, “I’m not going to sign this until tomorrow. I want you to inform Mr. Hall and his lawyers.” That night, we were informed, and then I had various lawyers, including my wife. We spent till, I don’t know, one in the morning or so looking at options.

Kathryn Hall (11:50):
It was really a high stress period across the board. Was sort of a job during the day of lawyer, and then also we had just a lot of emotional stuff that would be in anguish going on.

Craig Hall (12:02):
And ultimately, I did something that was really painful for me. I’ve signed in blank chapter 11, bankruptcy reorganization individually.

Don Braun (12:12):
He had to file bankruptcy because the RTC had been given these extraordinary powers. They could basically seize assets based on an allegation, on an allegation and a very low threshold of proving the likelihood of them prevailing in the allegation, very low.

Craig Hall (12:31):
The theory was that filing bankruptcy would hold off the legal action because bankruptcy law kind of freezes everything in place, and I still had all the assets in my name. And I negotiated directly with them.

Dick Hyman (12:44):
He had, at the time I met him, worked out a deal with the RTC to buy his properties back.

Craig Hall (12:52):
They agreed that if I could give them cash of $102,500,000 for certain loans that they owned, that they would agree that to dismiss the lawsuit against me for zero.

Dick Hyman (13:09):
That was the carrot, but the stick was, if he wasn’t able to do it, he had a multimillion dollar non-dischargeable judgment in bankruptcy, which basically meant he had this debt that would follow him around for probably the rest of his life. It was a crushing, crushing deal that was made with him.

Don Braun (13:26):
When something is presented to him that’s of great challenge, he has incredible laser focus to deal with that issue. There wasn’t anything that was going to get in his way between him and clearing his name.

Craig Hall (13:41):
They gave me 90 days to raise that much money. The company that agreed to raise the money was a company called Kidder Peabody.

Dick Hyman (13:47):
Which by the way wasn’t easy, because first of all, he was in bankruptcy. So anytime anybody is in bankruptcy, it’s a bit more of a challenge to get a lender to finance you.

Don Braun (13:58):
And we’ve been working on this for weeks and weeks and weeks, and it was complicated transaction, but it was sort of groundbreaking in terms of the financial structure that we were employing at the time.

Dick Hyman (14:09):
Don is spectacularly detailed and thoughtful when it comes to numbers. The folks at Kidder thought that the numbers were wrong. They spent days trying to go over it, to prove Don wrong. Well, he wasn’t, but they went overtime.

Don Braun (14:24):
I remember being at that closing. Every seat was taken, and people standing around.

Dick Hyman (14:29):
Craig, at this time, had suffered from kidney stones. He was hospitalized at some point. So on the final day of the closing, he’d come out and he was pretty ashen faced, pretty weak.

Don Braun (14:41):
We weren’t sure we could make the wire deadline.

Dick Hyman (14:43):
They continued to think something was wrong. So we missed the deadline. And then about a half an hour after the deadline, the banker probably say, “Okay, we’re ready to fund.”

Don Braun (14:55):
And we called the RTC, our representative at the RTC.

Dick Hyman (14:58):
And I remember the lawyer saying, “We’ve completed our transaction. We are ready to wire you the money. Will you accept the money?” Now, they had no obligation to accept it anymore. Time was up. If they didn’t do it, properties are gone and Craig has a $30, $40 million debt with no assets.

Don Braun (15:18):
There was really enormous consequences to it.

Dick Hyman (15:22):
I looked over at Craig, and he was already ashen faced from his kidney problems, but if he could have been even more so, he was. And everybody was holding their breath. And then after what was an interminable pause, the RTC lawyer finally said, “Yes, we’ll accept the funds.” The collective sigh in that room probably could have been heard five miles away.

Don Braun (15:47):
I mean, it was a euphoric moment. Oh, this cleansed the company, in a large way. Craig’s personal issues were resolved, the RTC issues were resolved. You knew at that point, okay, we can ride out of this and get back to work and do some other things.