Authors of S&L; Bailout Irked at Soaring Costs : Thrifts: House Banking Committee members say prospects are poor for getting up to $100 billion more to clean up the industry’s mess.
Members of Congress who helped write the savings and loan rescue legislation expressed surprise and anger Wednesday over estimates that the cleanup operation will need an additional $50 billion to $100 billion.
Some vowed that such massive additional borrowings would need congressional approval first--a position that clashes with regulators, who contend that legislation already gives them authority for additional borrowing.
“We certainly don’t want to give them (regulators) a blank check,” said Rep. Bruce Vento (D-Minn.), chairman of a House Banking Committee task force that is overseeing the bailout. “It’s highly questionable whether they can do it on their own. There would be an overwhelming negative reaction in Congress if they try to do anything like this.”
The S&L; rescue law, enacted in August, made $50 billion available to the Resolution Trust Corp., the new agency that is managing the bailout. And it authorized the RTC to borrow additional funds as necessary to pay off the crippled institutions’ federally insured depositors--provided that the RTC could count on recapturing at least 85% of those loans by selling the S&Ls;’ assets.
During the debate preceding the law’s enactment, the Bush Administration did not estimate how much additional borrowing might be necessary, and members of Congress did not ask. RTC Chairman L. William Seidman said Tuesday that the RTC had identified an additional 223 troubled S&Ls; and that it might need to borrow another $50 billion to $100 billion.
Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.) called that sum “far higher than previously mentioned or contemplated. It’s a huge amount to draw from the limited national savings pool.”
Several other key members of Congress said that despite the RTC’s borrowing authority, Congress will insist on approving additional loans on the scale contemplated by Seidman.
“The members of the Banking Committee have been burned too badly already,” said Rep. Stan Parris (R-Va.), a House Banking Committee member. “They’re going to undertake close and severe oversight of what happened and why. We don’t even know how bad the problem is, and we want to find out.”
Another committee member, Rep. Jim Leach (R-Iowa), said: “What you’re seeing is an acknowledgment on the government side that the depth of the hole is much greater than predicted even six months ago.”
The Bush Administration deserves “enormous credit” because “they stepped up to the plate and said the government has to be accountable,” Leach said. “Sadly, they underestimated by half and perhaps three-fourths the depth of the problem. Now they’re in a tortuous position of trying to figure out a way around the dilemma.”
Leach predicted a furious political battle over the RTC’s demand for more funds, with Democrats trying to blame the Bush Administration for mishandling the S&L; crisis. Republicans, he said, will respond by saying the crisis was caused by a Democratic Congress that lifted regulatory restraints on S&Ls; in the early 1980s, and by Democratic legislatures in Texas and California that permitted local S&Ls; to make risky investments.
“This is a Watergate in the making, symbolized in the Lincoln affair,” Leach said, referring to the collapse of Lincoln Savings & Loan in Irvine, which may ultimately cost the taxpayers more than $2.5 billion.
Seidman told a congressional hearing Tuesday that officials have not decided on the best way to borrow the additional billions of dollars in working capital. But it became apparent Wednesday that Congress will not accept substantial borrowing any time soon.
“I have not heard from a single member of the banking committee who would let Seidman go out on his own to do this,” said Rep. Frank Annunzio (D-Ill.), chairman of the House Banking subcommittee on financial institutions.
Seidman and other officials at the RTC “need to get their act together before getting another $50 billion,” said Rep. Richard H. Lehman (D-Sanger). “They need to clean up the mess, not contribute to the confusion. They already have a blank check for $50 billion.”
