Senate Panel OKs $57 Billion for S&L; Bailout

The Senate Banking Committee voted Friday to provide $57 billion more for the savings and loan bailout after the Bush Administration warned that cleanup efforts would stop without the money.

The 21-member Senate panel approved the request from Treasury Secretary Nicholas F. Brady on a voice vote and sent the measure to the full Senate. The House Banking Committee postponed a hearing on the request Friday but is expected to act next week.

The money would cover losses at savings and loans seized by the government and keep the bailout operating throughout the new fiscal year, which started Oct. 1. The funds would be in addition to $50 billion authorized last year. They also would come on top of $60 billion in short-term borrowings to be repaid as regulators sell seized assets.

Since President Bush sought the first $50 billion last year, declining real estate values and other problems have pushed up the cost of the bailout. The total costs, including long-term interest, are estimated at $500 billion.

The Administration warned in August that the cleanup would cease before the end of the year unless Congress approved new spending. The Administration had sought an open-ended authorization to spend as much as necessary.

Congressional Democrats, however, were reluctant to provide additional funds without a specific request from the Administration spelling out the amount needed.

On Wednesday, Brady sent a letter to the Democratic and Republican leaders of the banking committees in both the Senate and House. Unless additional spending is authorized before Congress adjourns later this month, Brady said, the bailout “will virtually cease within the next two months.”

In the letter, Brady said it would be appropriate for Congress to provide open-ended spending authority. Because of the opposition, however, he said that $40 billion would be sufficient to provide for the current fiscal year.

Brady also asked the lawmakers to abandon a requirement that Resolution Trust Corp., which oversees the bailout, maintain a 15% reserve to cover unexpected losses. Maintaining the reserve, Brady said, would cost another $17 billion.

In a debate before the vote Friday, Senate Democrats contended that the reserve is a necessary cushion and approved the full $57 billion in new spending.

House Banking Committee Chairman Henry B. Gonzalez (D-Tex.) said he expects his committee to take up the issue next week. At a meeting of Democrats on the House panel Thursday, most favored providing less than a full fiscal year’s worth of bailout money. Brady said in his letter that $20 billion could keep the program running through April.

The new bailout aid was criticized sharply by the Financial Democracy Campaign, an alliance of 400 community, labor, church and civil rights organizations.

In a letter to congressional leaders, the group said that borrowing money to pay for the bailout will triple its eventual cost. They advocate a plan to raise the funds from the financial industry and wealthy depositors who were bailed out by deposit insurance.