House Panel OKs S&L; Bailout Bill With a Provision for Poor

Times Staff Writer

The House Banking Committee, after a marathon 14-hour session, voted Tuesday for a sweeping savings and loan rescue package that includes tough financial standards for S&Ls; and new housing opportunities for poor people.

The committee voted 49-2 to approve the biggest financial bailout ever, a $157-billion expenditure to restore the federal insurance fund that protects deposits up to $100,000. Only two members of the committee, Democrat Joseph Kennedy of Massachusetts and Republican Jim Leach of Iowa, voted against the measure, which had the enthusiastic support of the Bush Administration.

“This is a good bill; we all have reason to be proud,” said committee Chairman Henry B. Gonzalez (D-Tex.). “We have kept faith with the American public.”


The committee’s ranking Republican, Chalmers Wylie of Ohio, paid tribute to Gonzalez, saying “you have helped draft a bill of which we can all be justly proud.”

Members of the committee gave standing ovations to both Wylie and Gonzalez, and they sang “Happy Birthday, Dear Henry,” to Gonzalez, who is 73 today.

Earlier in the day, the committee approved an amendment to give community groups, nonprofit organizations and poor families the opportunity to buy homes appraised for $67,000 or less. The homes were part of the real estate portfolios of financially insolvent S&Ls.;

Under the proposal by Rep. Barney Frank, community groups and the poor would be given the first opportunity to buy the properties during the initial 90 days that the homes are made available for sale by federal regulators. After 90 days, any prospective buyer can make a bid on the properties.

In the legislative package approved Tuesday, funds from the S&L; industry would be combined with money from the taxpayers to pay for the shutdown or sale of hundreds of insolvent thrift institutions.

Major political battles are predicted when the legislation goes to the House floor. The House Banking Committee adopted tough financial standards to force individual S&Ls; to raise billions of dollars in additional capital to remain in business.


The standards are more strict than those proposed by the Bush Administration or those already approved by the Senate. The S&L; industry, which still retains potent lobbying power, is expected to push for weaker standards when the bill reaches the House floor.

And House liberals, rebuffed in committee, will carry to the full House their plan to finance the insurance fund bailout by raising personal and corporate taxes.

The S&L; industry would be forced to raise an additional $6 billion to meet the Banking Committee capital rules, according to Administration estimates. Under this standard, the S&Ls;’ capital--money contributed by the S&L; owners, plus retained earnings--must equal 3% of the loans outstanding. S&Ls; would be given a timetable to meet the standards, rising in stages to 3% by 1995.

In the past, many S&Ls; made dangerously risky investments because the owners and managers had little of their own money at risk. “Unless there is real capital, cash, dinero, we have learned nothing from the past,” Gonzalez said.

Rep. Richard H. Lehman (D-Sanger) said: “I know not everyone in the S&L; industry will be happy with this bill, but our responsibility is to protect the public interest first. Everyone will benefit from the stability the legislation would bring to the beleaguered industry.”

The House Banking Committee accepted the general financing plan proposed by the Bush Administration, which would cost an estimated $157 billion over the next 10 years.


Would Back Notes

The legislation would create a new off-budget agency to sell $50 billion in bonds. U.S. taxpayers would pay the interest on those bonds. The $50 billion would help dispose of several hundred insolvent S&Ls.; Funds would pay off depositors, whose accounts are insured up to $100,000.

An additional $40 billion would be spent to make good on promises already made by federal regulators to outside investors who previously bought crippled S&Ls.; To attract buyers, regulators in the past offered notes and financial guarantees against future losses at the S&Ls.;

The remaining funds would be consumed by interest payments on the bonds.

The financial bailout became necessary because the federal savings and loan insurance fund is broke, making it impossible for the government to close insolvent S&Ls.; The insurance fund is the bulwark of financial security and stability for millions of Americans who have deposits at S&Ls;, because it guarantees their accounts up to $100,000. The President and Congress have repeatedly pledged that these accounts are absolutely safe.

Thus, there is a great sense of urgency in Congress to pass a bill to close the financially crippled thrifts, where cumulative losses are running at $500 million to $1 billion a month.