The battle over the savings and loan bailout will now move to a conference committee appointed to iron out differences between the House and Senate versions, an operation that will give new hope to those who wish to weaken the regulations.
As matters now stand, both the House and the Senate have accepted the basic formula proposed by President Bush to require increased cash capitalization for the industry. That is the most important element of the bailout and the strong support in both houses would seem an assurance that any further efforts to weaken those requirements will be defeated.
There will be a sharp fight, however, over funding the bailout. The President is mounting a major political effort to sustain his own more expensive formula, which is included in the Senate version, to hide the cost by issuing special federal bonds that will cost taxpayers millions, perhaps billions, of additional dollars. Treasury Secretary Nicholas Brady has made a crusade of the strategy, presumably out of embarrassment that the bailout is an enormous addition to the deficit that Bush is trying to cut without raising taxes.
House members wisely rejected this strategy and adopted a more honest a straightforward plan, keeping the awesome cost of the bailout on budget so that it can be financed with less-costly Treasury bonds. That would breach the deficit limits set by Gramm-Rudman-Hollings, so the House has voted a waiver that will require support of at least 60 of the 100 members of the Senate. The President claims support of some 42 senators, enough to kill the proposal. Perhaps he will accept a more reasonable position in the days ahead as the real meaning of his proposal, translated into the added burden for taxpayers, becomes clearer.
Some savings and loan companies also will try to kill a provision in the House version requiring a modest allocation of Federal Home Loan Bank funds to subsidize low-interest loans to help low- and moderate-income persons obtain housing. It is a particularly welcome provision with more and more Americans being denied access ownership by rampant real estate price inflation.
There also will be a battle to restore the special- interest provisions for a few companies that were stripped from the House bill but are part of the Senate version. Concern about restoring public confidence in Congress, which motivated the House action, may yet encourage the conferees to cleanse the bill of these special elements.
Most of California's congressional delegation resisted efforts to weaken the new capital requirements. All 27 Democrats and 10 of the 18 Republicans supported the President. The eight Republicans who voted against the President and in favor of softening the capital requirements were William Dannemeyer of Fullerton; Robert Dornan of Garden Grove; David Dreier of La Verne; Bill Lowery of San Diego; Al McCandless of Bermuda Dunes; Carlos Moorehead of Glendale; Ron Packard of Carlsbad, and Norm Shumway of Stockton.
In any form, the bailout will be painful for taxpayers, who will pay most of a total cost of close to $300 billion over 10 years. Unfortunately, there is no reasonable alternative, given the federal commitment to protect depositors. But the bailout must serve as a reminder that the collapse was no accident. It resulted from the failure of Congress and federal regulators to control the situation, and from mismanagement, much of it laced with larceny, on the part of irresponsible thrift executives. The best that can be done now is to adopt rules to minimize the risk of a repeat, and to keep the cost as low as possible.