The Bottom Line of the S&L; Mess Is a ‘Train Wreck’

News item, May 23, 1990:

“The Bush Administration today dramatically increased its estimates of the cost of rescuing the savings and loan industry based on a new forecast that as many as 1,030 institutions will fail.

“Treasury Secretary Nicholas Brady told Congress the government will need to borrow between $90 billion and $130 billion to clean up the S&L; mess. . . .

“These estimates do not include the cost of paying interest on the borrowings. When that figure is included, the S&L; bailout cost is expected to top $300 billion.”

Aboard Air Force Two, Oct. 15, 1988, en route from Los Angeles to Stockton, Calif.:

George Bush tells his press pool “there’s no overconfidence at all” as he heads into the last weeks of the presidential campaign. “Some people are very excited,” he says. “They are not the candidate. I’m the one running for President. They’re not facing what I have to face every day.”

A reporter asks him how he slept after his second debate with Michael Dukakis two days earlier.

“I didn’t sleep too well,” Bush says.

Why not? the reporter asks.

“If I knew, I would have slept all right,” Bush says.

Another reporter asks him about the savings and loans across the nation that are in danger of failing because of their bad investments. Though it has never become an issue in the campaign, everybody knows there is a huge problem out there.

He asks Bush if he expects that $100 billion will be needed to bail out the industry as some predict or whether $50 billion will be enough.

Bush scoffs at both figures.

“I don’t believe we need to do that,” he says. “(We need to) reassure the depositors that they are in no jeopardy at all. . . . I have no plans for a $50-billion bailout.”

Two weeks earlier, on Sept. 29, Dukakis had tried to raise the savings and loan mess as an issue. He said that “George Bush could have headed off” the S&L; crisis as vice president, and now it will cost “at least $50 billion” and maybe as much as “$70 billion” to pay for the bailout.

In response, M. Danny Wall, chairman of the Federal Home Loan Bank Board and FSLIC, describes these estimates as “rubbish.”

Now, aboard Air Force Two, Bush is asked whether he has any bailout plan of his own, any figure of his own, to suggest.

“No,” he says. “I don’t have a figure.”

A few hours later, the press pool will report Bush’s statements to the rest of the reporters following the campaign. His quotes about not sleeping well and having no overconfidence will appear in story after story.

Few reporters, however, will bother with the quotes on the savings and loan crisis. It is a crisis without drama. There are no hostages, no rising flood waters, no victims to be interviewed on the nightly news.

Besides, most reporters, like most Americans, hate stories with numbers in them.

On Feb. 6, 1989, about one month after his inauguration, George Bush announces a rescue plan for the nation’s S&Ls.;

Price tag: $40 billion. The White House says it is confident this amount will be enough.

On Feb. 7, Administration officials are questioned by reporters and admit the “true figure” might be closer to $126 billion.

Two weeks later, the Administration revises the figure upward, this time to $157 billion. Later, it climbs to $164 billion.

On May 23, I call U.S. Rep. Bruce Morrison (D-Conn.), a member of the House Banking Committee, who I have known since college.

“The number are so high, they have no political impact,” Morrison says.

Who is going to pay for all of this? I ask.

“It’s going to come from the middle class,” he says. “The poor can’t pay and the rich won’t and so middle-class America is going to get clobbered for the S&L; crisis.”

And it’s really serious?

“We are talking about a real disaster,” he says. “The true figures are staggering, astronomical. And neither party wants to face up to it. Among ourselves, though, we have a name for it. We call it the Train Wreck.”

And it’s coming?

“Oh, yes,” he says. “The Train Wreck is real. We are talking about real calamity for some people in this country.”

Morrison explains he is not talking about people losing the money they now have in S&Ls.; That won’t happen. What will happen instead is something less dramatic, but far more serious:

Americans are not going to live as well. Some Americans have already started to notice it. It takes longer and longer to save for a house and some people may never be able to afford one. Some workers used to raises every year are no longer getting them.

And in the future, as the debt for the savings and loan disaster must be paid, just one family crisis--an illness or a layoff--will reduce some middle-class families to poverty and even homelessness.

“Unless we face up to this, in the future Americans will be a lot poorer than they need to be,” Morrison says. “We have been playing Russian roulette so far. But at some point, you get to where the chamber is loaded.”

On May 24, 1990, George Bush holds a press conference.

“We don’t know the impact on the taxpayer yet,” he says of the crisis, and Administration officials “don’t know a specific figure” for the ultimate cost.

“We can’t brush this problem under the rug,” the President says. “It has been building for 20 years. And it is something that causes me great concern.”