Wall Street Calls Bush S&L; Bailout Plan Too Expensive

Wall Street experts today called President Bush’s plan to finance the savings and loan bailout a “banana republic” scheme that will cost taxpayers roughly $30 billion to $50 billion more than a House Democratic alternative.

Banking analyst Bert Ely of Ely & Co. of Alexandria, Va., who submitted a statement to the House Task Force on Urgent Fiscal Issues but who did not appear at its hearing on the S&L; crisis, joined others in urging that bailout costs be kept in the federal budget rather than removed, as Bush wants.

By keeping the bailout in the budget and by using some creative financing, Ely said, taxpayers could save $20.5 billion over the 30-year financing period for the $50 billion in bonds that would be issued to finance the plan.

That level of savings occurs using more realistic assumptions about interest rates than those used by the Bush Administration, he said. Using Administration assumptions of lower interest rates, he said, “$49.7 billion in interest outlays can be saved over 30 years” if creative financing with one-year Treasury bills is used.

“The Administration’s interest rate assumptions are far too optimistic,” he said.

Either way, Ely added, “the amounts that can be saved by on-budget financing are enormous.”

$150-Billion Cost

The Bush bailout plan, expected to cost more than $150 billion over 10 years, calls for taking the costs off-budget and setting up a quasi-government corporation to handle the financing.

The House Ways and Means Committee voted last week to keep the bailout plan on-budget and issue Treasury bonds--a move that will increase the federal deficit but that economists said would save money in the long run.

Bush has apparently hinted that he might veto a final bailout plan if the financing is kept on-budget.

David Jones, senior vice president and chief economist at Aubrey G. Lanston & Co. Inc., said that, depending on interest rates, it could cost $28.3 billion to finance the plan off-budget.

Rep. Charles E. Schumer (D-N.Y.), chairman of the task force, urged Bush to change his mind and put the plan on-budget.

“I believe it would be cheaper, more honest and more manageable to put the bailout on-budget,” he said. “An on-budget approach would lower the interest rates the government would have to pay and . . . could save well over $20 billion--not the $4.5 billion often cited--over the next three decades.