S&L; Bailout Cost Next Year May Top $50 Billion : Thrifts: The General Accountng Office says the bill to taxpayers could get much bigger if the recession proves worse than expected.
The General Accounting Office will report today that the savings and loan cleanup will cost taxpayers at least $50 billion in the next fiscal year--an estimate that pushes the total cost close to the upper limit proclaimed by the Bush Administration.
Moreover, the $50-billion figure could become considerably larger if the recession is deeper and lasts longer than current expectations, according to a report prepared by the GAO for the House Banking Committee.
The committee already is considering a request by the Bush Administration for $30 billion to cover this year’s losses from shutting down insolvent thrifts and paying off their depositors.
The GAO, the investigative arm of Congress, gives a “pretty good report card” on the government’s efforts to dispose of the assets of failed thrifts, according to Rep. Peter Hoagland (D-Neb.), a member of the banking committee, who attended a briefing Monday by GAO officials.
The generally positive GAO report “could make the difference” in the Administration’s ability to win committee approval for $30 billion to cover thrift losses in the current year, Hoagland said.
The White House wants permanent funding authority from Congress to spend the billions of dollars needed to make good on the government’s pledge to protect deposits up to $100,000. This money will fill the gap between insured deposits and assets at the thrifts. Assets have shrunk in value because of the slumping real estate market.
But the GAO report says it would be a mistake to vote permanent spending powers, giving an “open checkbook” to the Resolution Trust Corp., the agency handling the disposal of insolvent thrifts. Instead, providing the money one year at a time “allows RTC to efficiently plan its workload, while retaining a congressional control mechanism,” according to the testimony prepared for today by the GAO chief, Comptroller General Charles A. Bowsher.
“Critical to the RTC’s success is the need to have the necessary funds to operate efficiently,” Bowsher is scheduled to say in his prepared testimony. “On the other hand, the committee and the American taxpayers need progress reports from the Administration to ensure that the monies are being well spent. In other words, the RTC can’t just have open-ended access to funds.”
The Bush Administration insists that the total cost of disposing of hundreds of insolvent thrifts should not exceed $130 billion. However, the accuracy of that figure could be in jeopardy: The RTC has already spent $37 billion to cover S&L; losses. Adding $30 billion for this year, and at least $50 billion for next year, produces a total tab of $117 billion to close all insolvent thrifts.
But “a lot more could be needed if the recession is deep and long,” Hoagland said. The Administration expects the business recovery to begin gathering strength in April, bringing with it an upturn in real estate prices and an improvement in value of S&L; real estate portfolios.
If White House economists are wrong, the cost of covering losses next year could soar well above $50 billion, breaking the upper limit of $130 billion proclaimed for the entire thrift bailout.
Hoagland said members of Congress will be greatly disturbed at the prospects of voting additional billions of dollars, but he said they have little choice because the thrift cleanup must be carried out.
The Senate Banking Committee earlier this month approved the Administration’s request for $30 billion to cover losses in the current fiscal year, which ends Sept. 30.
However, the outlook is much more uncertain in the House Banking Committee, despite Hoagland’s forecast of ultimate approval.
Committee members from New England, angered at what they consider unreasonable behavior by bank regulators, are threatening to block passage of S&L; legislation. They argue that a credit crunch has enveloped their region because regulators are unduly strict in reviewing bank loans, forcing the banks to call for immediate repayment of loans, thereby crippling local credit markets.
The New England members want a change in policy by bank regulators in return for supporting additional funding for the S&L; bailout.
