Bailout Agency Is Fast Going Broke, Officials Warn : Thrifts: Resolution Trust Corp. will run out of money before year-end unless it gets additional funding. Congress is expected to be briefed today.
Treasury Secretary Nicholas F. Brady is expected to warn Congress today that the government’s thrift bailout agency could run out of money as early as October, an event that would halt government efforts to mop up sick savings and loans.
The disclosure came through comments from Resolution Trust Corp. Chairman L. William Seidman in response to reporters’ questions in Washington. Details of Brady’s expected testimony also was disclosed Wednesday in the trade publication American Banker.
Seidman said the RTC could run out of money between October and year-end. He attributed the estimate to Brady, who is expected to publicly announce it at a House Banking Committee hearing today.
The disclosure that the RTC will need more money comes as no surprise. Several private analysts, including Alexandria, Va., thrift consultant Bert Ely, have been warning about it for some time. Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.) also has said Congress probably would have to act later this year to provide new money.
But Brady’s disclosure is expected to increase pressure on Congress to loosen the purse strings so that the RTC can continue its stepped-up pace in trying to clean up the thrift mess. The RTC by last week controlled 295 failed thrifts that need to be resolved. Some 300 more still operating independently appear headed for the S&L; graveyard.
American Banker said Brady is expected to tell the committee that the RTC could stretch out its schedule by easing up on its pace, but that it would still run out of funds early next year.
Three weeks ago, Brady said as much as $60 billion in additional cash would be needed to resolve ailing thrifts. He doubled the Bush Administration’s previous estimates of the cost of the bailout, saying it could range from $89 billion to $132 billion.
The Brady estimates are in present dollars, or the cost to taxpayers if a check was written today to completely resolve the problem. The eventual cost of borrowing money over 30 to 40 years has been estimated as high as $500 billion.
The immediate problem is that the RTC will run out of borrowing authority unless something is done. Without that authority, the agency cannot dispose of problem thrifts either by selling them or paying off depositors. Seidman said the agency has enough borrowing authority to mop up 95 to 120 more S&Ls.;
The RTC was initially given authority to raise $50 billion through long-term bonds to cover losses for insolvent thrifts, about $30 billion of which is expected to be used up by the end of this month. The RTC also may borrow up to $45 billion in short-term “working capital” that is repaid as it sells real estate, securities and other assets of failed thrifts.
Separately, Seidman and other RTC officials announced that the agency plans to speed up sales of the 36,000 real estate properties it has taken over.
The agency will make information available for a price on computer disks and a system that allows potential buyers to plug into a list of its inventory on-line. A complete inventory on floppy disk will be available for $375. Information on computer disks may be obtained by calling (800) RTC-2990.
In addition, a toll-free number, (800) RTC-3006, is being provided for those without computers who want to inquire about properties in specific geographic regions.
