Why S&L; Pit Gets Deeper : Thrifts: The bailout cost keeps rising because of a soft real estate market, more bad loans than anyone realized and, simply, the way the figures are calculated.

TIMES STAFF WRITER

Why are estimates of the taxpayers' cost to mop up the nation's savings and loan mess still rising at an alarming rate?

The simple answer is that the thrift industry is in much worse shape than anyone thought last August when President Bush signed the S&L; bailout bill.

"It's like a patient walking into a hospital who looks sick. Until you get him under the CAT scanner, you don't know that he's dying," Deputy Treasury Secretary John E. Robson said at a thrift seminar this week in Washington.

Some thrifts, such as Great American Bank in San Diego and Columbia Savings & Loan in Beverly Hills, appeared to be survivors last year. But those seemingly healthy thrifts have since suffered massive losses stemming from troubled real estate loans in the case of Great American, or huge junk bond losses in the case of Columbia.

Now both are in danger of being taken over by regulators. Indeed, some 200 or more institutions nationwide that no one figured last year to fail may have to be taken over. Worse-than-expected real estate conditions are one reason; another is new federal capital standards--requiring financial resources to cushion against losses--that many of these thrifts will be unable to meet.

In addition, troubled institutions are a bigger mess than anyone thought. Regulators have made new discoveries of loans at thrifts that will never be paid back, or found that real estate they own isn't as valuable as previously thought.

"It was such a deep hole that people couldn't see the bottom of it," said James Barth, an Auburn University professor and former chief economist with the federal Office of Thrift Supervision, which regulates thrifts.

Interest among potential buyers of problem S&Ls; is waning, in part because there is a glut of thrifts for sale and generous tax benefits are no longer provided to buyers. And a severe softening in some real estate markets has made all of the problems much worse.

On Wednesday, Treasury Secretary Nicholas F. Brady acknowledged in Senate Banking Committee testimony that the Bush Administration badly underestimated the problem, saying that the cleanup costs could rise to between $90 billion and $130 billion in today's dollars, compared to $73 billion before.

Brady's statements represent the first time the Administration's estimates approached those of private analysts and officials from the General Accounting Office. Several officials said they found it encouraging because the bitter debate over the bailout cost has tied up valuable time needed to move ahead in solving the problem.

"We are encouraged that they have got a number out there that looks relatively realistic," said Richard L. Fogel, assistant comptroller general in the General Accounting Office, an arm of Congress.

Brady's estimate does not include additional costs stemming from long-term commitments the government gave buyers of sick thrifts in 1988. Those transactions are being audited, and a better estimate of the costs is expected to be known later this year.

So how much will it all cost? That depends on how you measure it.

Last month, for example, Fogel shocked the nation when he testified that the cost could range from $325 billion to as much as $500 billion. Yet others have been saying $130 billion or so.

The confusion can be explained because some estimates calculate the "present value" of the cost while others calculate the eventual cost of over 30 to 40 years. It is about like comparing the purchase price of your home to the total you will pay in principal and interest over the life of your mortgage.

The present-value cost, which experts estimate ranges from $90 billion to $160 billion, reflects what it would cost the government to solve the problem by writing a check today to close the troubled thrifts and pay off depositors.

The highest cost estimates, such as Fogel's $325 billion to $500 billion, are what it will cost over 30 to 40 years, taking into account the cost of borrowing and paying off the principal and interest.

The best analogy is that a family borrowing $200,000 today to buy a home actually ends up paying back $600,000 in principal and interest over the life of the loan, assuming they have a 30-year mortgage at a 10% interest rate. Likewise, the government's bill of $90 billion to $160 billion will rise to between $325 billion and $500 billion because it is borrowing the money and taking 30 to 40 years to pay it off.

WHAT THE S&L; CLEANUP ESTIMATES MEAN

Type of Estimate: Amount. What it means

Present value: $90 billion to $160 billion. The cost if the government had to write a check today to close troubled thrifts and pay off depositors.

Cash estimate: $325 billion to $500 billion. The cost of borrowing to clean up the thriftmess and paying off the principal and interest over 30 to 40 years as the goverment plans to do. Higher estimate takes into account such developments as a recession and some unexpected thrift failures.

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