This research shows that conservative methods of projecting and discounting cash flows, if applied to information already collected in the FHLBB's reporting system, would have reflected the size of the S&L deposit-insurance losses long before taxpayers were aware of the extent of the mess. Official data show FSLIC reserves of $4.6 billion in 1986. In sharp contrast, our conservative estimate puts imbedded losses for that year at $45.3 billion. These methods prove insensitive to arbitrariness in the assumptions needed to operationalize the discounting process and measure the extent of 'guilty knowledge' it is fair to presume officials possessed - supporting an incentive-breakdown theory of the problem over presumptions of innocent ignorance. The policy implication is that taxpayers need to impose on government regulatory agents a better information system and better enforcement of those agents' obligations to the public.
