Flesh & Blood

The Federal Deposit Insurance Corporation is soberly known as the Government agency that ensures bank accounts up to $10,000--but that is only part of its job. Organized 30 years ago, when Depression-hit banks were closing at the rate of 4,000 a year, it has since liquidated the assets of several hundred failed banks, often picking up unusual properties in the process. One of the most unusual came into the agency's possession when it took over $106,000 in mortgages on a small and sleazy hotel in Houston after the First National Bank of Marlin, Texas, failed in March. What the FDIC has on its hands, it seems, is a brothel.

Until this year, the stuffy FDIC would probably never have admitted to such ownership. But the atmosphere has changed under new Chairman Joseph W. Barr, 46, a Harvard-trained economist and former Indiana Congressman who was Lyndon Johnson's first executive appointment. "Banking is a flesh-and-blood business," says curly-haired Joe Barr, "and there's no sense pretending it's not." Whatever part the flesh may have played in the failure of the $3.8 million Marlin bank, Barr is trying to get back some of the blood; the FDIC has filed a $1.2 million civil suit charging that major stockholders of the bank misappropriated funds.

Barr is less disturbed by his odd properties than by the fact that the Marlin bank failure illustrates what may be a trend. Most banks over the years since the Depression have gone under either because officers embezzled funds or showed poor judgment in making loans. But the four banks that have failed in the past 16 months had each been acquired by new management just before failure. Barr fears that unprincipled operators may be taking over small banks, paying themselves inflated salaries to recover acquisition costs, and then selling risky loan paper to their own banks. Barr aims to stop such practices, perhaps with new legislation and certainly with a sharper eye on the nation's banks.

All this may slow but surely will not eliminate the flow of unlikely acquisitions. The FDIC has taken over a string of race horses that had been bought by a California banker with embezzled funds, has also held resort hotels, antiques, furs and whisky warehouses. Occasionally the agency is even able to operate such enterprises more profitably than the original owners. It turned an abandoned Idaho gold mine into a tourist attraction, and still owns a Texas oilfield that earns $3,000 monthly.

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