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The Supreme Court Wednesday expressed ill will toward both sides in an argument over "goodwill," an accounting gimmick that propped up troubled thrifts such as Buffalo's Empire of America Federal Savings Bank until the government changed the rules in 1989.

Thrift executives blamed the rule change, included in the 1989 thrift bailout bill, as one of the key reasons behind the demise of Empire and countless other thrifts. Three of those thrifts took that argument to the high court, saying that when the government changed the rules on goodwill, it breached contracts with thrift management and thus is liable for damages.

At first, the justices seemed to be siding with that argument. Paul Bender, a lawyer for the government, said federal thrift officials never signed any contracts guaranteeing the use of those liberal accounting rules. To which Justice Antonin Scalia said: "You want us to believe that these thrift officials put themselves in an insolvent condition without any commitment on the part of the government? It's so utterly implausible."

But later, when lawyers for two defunct thrifts made their case, other justices tore it apart. When Joe G. Hollingsworth, a lawyer for Glendale Federal Savings Bank of California, said that the contract agreement was included only in a letter signed by a thrift accountant, Justice Sandra Day O'Connor said: "You mean you can't cite a written document?"

All told, it was a feisty discussion of an arcane topic: the government's policy of allowing thrifts to count goodwill as an asset until 1989, when it was suddenly wiped off the books, forcing countless thrifts into insolvency.

Under the government's reasoning, "the government would have the right to renege on any contract with any military contractor or anyone else," said Stephen Trafton, a former treasurer at the now-defunct Goldome Bank of Buffalo and now chairman of Glendale. "That would obviously be a ludicrous state of affairs."

A victory by the thrifts would mean that the three cases would be sent back to the lower courts, where damages would be assessed.

Douglas P. Faucette, an attorney who brokered Empire's acquisition of several troubled thrifts in the early 1980s and who attended Wednesday's arguments, said government regulators at the time routinely assured thrift executives that goodwill would be allowed to remain on the books as an asset for years to come.

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