Wall Street Journal
January 26, 2000

Green Group Seeks to Link S&L to Trees
By Marc Lifsher

OAKLAND -- A local environmental group is calling for Houston-based
Maxxam Corp. to consider an unconventional "debt-for-nature" swap if
the company loses a fight with U.S. regulators.

For five years, the U.S. Office of Thrift Supervision has been involved
in an enforcement regulatory proceeding with Maxxam before an
administrative-law judge in Washington, D.C. The government alleges
that Maxxam and its chairman, Charles Hurwitz, unlawfully exercised
control of the former United Savings Association of Texas and its
holding company, United Financial Group Inc., but failed to see that
the thrift met capital-adequacy requirements. The complaint also
describes allegedly unsafe securities trading and improper real-estate
lending that contributed to the 1988 failure of the savings and loan
and a $1.6 billion loss to taxpayers.

The government in a post-hearing brief last Oct. 4 is asking Maxxam to
pay $821 million in restitution. Now, as a Jan. 31 deadline nears for
filing final legal briefs, the environmental group -- the Rose
Foundation for Communities and the Government -- is urging the
government to ask for a so-called debt-for-nature swap instead of a
restitution payment.

In the suggested swap -- described in a widely distributed, 30-page
legal and financial position paper -- Maxxam would give the government
as little as 8,000 acres and as many as 63,000 acres of timberland
owned by Maxxam's Humboldt County subsidiary, Pacific Lumber Co.,
suggests Rose Foundation President Jill Ratner.

"This seems like a possibility to salvage something of value from the
savings-and-loan debacle," she says.

The U.S. government has indicated it is at least open to the possibility
of considering such a debt-for-nature swap. An Oct. 1995 letter from
Federal Deposit Insurance Corp. Chairman Ricki Helfer to former U.S.
Rep. David E. Skaggs of Colorado states: "You may be assured that the
[FDIC] remains open to any appropriate settlement of its claim,
including a debt-for-nature swap."

In another letter, dated Aug. 23, 1994, John V. Thomas, associate
general counsel of the FDIC writes to one Larry Helbrook of Eleva,
Wis.: "We are mindful of the possibility that if Pacific Lumber's
parent company can be held liable for [United Savings] losses, issues
involving the redwood forests might be brought into play."

For its part, Maxxam dismisses the swap suggestion. Ms. Ratner's plea
for a debt-nature trade is based on an absolutely "flawed premise"
because "there is no debt," says Maxxam spokesman Joshua Reiss. Maxxam
and Mr. Hurwitz, he says, did nothing wrong: Maxxam (then known as MCO
Holdings Inc.) didn't own a controlling interest in United Savings'
holding company and, therefore, wasn't responsible for maintaining
capital levels at the thrift. United Savings went under, says Maxxam in
a written summary of its Thrift Supervision case, because of the
"`boom' and then `bust' cycle of the energy and real-estate markets [in
Texas] at that time."

In fact, says Mr. Reiss, the government's case is simply a
"politically motivated" effort inspired by the Rose Foundation and its
environmental allies to force Maxxam to give up a portion of its
California timberlands.

Maxxam lawyers say the voluminous legal record in proceedings brought by
the Federal Deposit Insurance Corp. in U.S. District Court in Houston
and the Office of Thrift Supervision administrative hearings in
Washington, D.C., reveals a regular flow of communications and lobbying
by environmentalists with federal regulators, Democratic congressmen
and the White House on behalf of various debt-for-nature proposals.
Indeed, the volume of communications between environmental groups and
regulators concerning Maxxam totals "thousands of documents," Thrift
Supervision wrote to Maxxam attorneys in a Jan. 13 response to a federal
Freedom of Information Act request from the company.

For her part, Ms. Ratner doesn't deny that she regularly communicates
with Thrift Supervision and, in fact, provided it with detailed analyses
of possible land-swap deals. "We're citizens; we communicated with the
folks in government, which I think was within our exercise of free
speech," she says. "But, I think it would be extraordinarily arrogant of
me to believe that we convinced them to do something they were not
planning to do anyway."

Her latest position paper, she says, is particularly germane now that
final briefs are due in the Thrift Supervision, and "the parties are
going to have to get realistic pretty quickly" about a possible
settlement. Moreover, argues Ms. Ratner, the lands that might become
available in a debt swap hold little current economic potential for
Maxxam, since logging on them is restricted as part of a March 1999
agreement with federal and state governments. The deal provided $450
million in public funds and property exchanges for the purchase of 5,600
acres of Pacific Lumber's Headwaters redwood forest in northern Humboldt
County. Accompanying regulations also call for Pacific Lumber to curtail
cutting on upward of 33,000 acres of environmentally sensitive land it
still owns.

The Maxxam case, including any possible settlements, is no different
than any other regulatory action stemming from the 1980s
savings-and-loan scandal, says Thrift Supervision spokesman Bill

"This has nothing at all to do with environmental or political matters,"
he says. "We weren't in cahoots with anybody."

Copyright 2000 Dow Jones & Company, Inc. All Rights Reserved.

Karla James
The Rose Foundation
for Communities and the Environment
6008 College Ave., Suite 10
Oakland, CA 94618
510/658.0702 v
510/658.0732 f

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