Bush Plan for Thrifts Under Fire : Bailout: The House Banking Committee chairman says the Administration’s proposal to shore up troubled S&Ls; would use taxpayer funds to protect shareholders.

The chairman of the House Banking Committee expressed “grave concerns” Tuesday about a Bush Administration proposal to pump taxpayer money into sick savings institutions before they fail.

The plan, advocated by Office of Thrift Supervision Director Timothy Ryan, would in some cases bail out S&L; stockholders in addition to depositors.

Rep. Henry B. Gonzalez (D-Tex.), chairman of the House Banking Committee, said the program was reminiscent of government efforts in the mid-1980s to keep failed S&Ls; open in hopes their condition would improve. Instead, they continued to sink, ballooning the eventual bailout cost, and Gonzalez said it could happen again.

“I have grave concerns” with “sinking more money into bets that history shows are almost certain to lose,” he said. “If we’re going to go that way, my recommendation is that we go out to Las Vegas and hire the best bookie we can find.”

The comments came in a surprisingly cordial hearing on the funding needs of the Resolution Trust Corp., the federal agency charged with cleaning up failed thrifts.

Treasury Secretary Nicholas F. Brady and Albert V. Casey, the new chief executive of the RTC, asked for an additional $55 billion in thrift bailout funds, beyond the $105 billion already provided. The usually hostile panel appeared willing to vote for more RTC money with little fight.

The reason may be that, with this an election year, few politicians have the stomach for battles over the thrift cleanup. It is a sore point with many voters, who are upset by estimates that the ultimate cost could be $400 billion.

Even though the committee seemed willing to give the agency more operating funds, there was opposition to the proposed policy of early resolution of troubled thrifts. Ryan conceded that protecting shareholders was “a very tough decision.”

But, he said, in some cases keeping an institution open has advantages. It can be cheaper because regulators would intervene before a sick institution had the chance to deteriorate. And it can help the credit crunch by avoiding the sale of the assisted institution’s loans and real estate on weakened markets.

The Administration is under increasing pressure to devise ways to cushion the economic blow of bank and S&L; failures, particularly in states that have been hard hit by the recession and a scarcity of credit.

Rep. John LaFalce (D-N.Y.), chairman of the Small Business Committee, said: “Movement away from the single-minded liquidation strategy we have unfortunately pursued in the last several years is essential if we are to get our economy moving again.”

But Rep. Jim Leach (R-Iowa) said the government should not be in the business of picking winners or subsidizing losers in the free enterprise system.

“It is ironic that the more conservative economic party is toying with a ‘Father Knows Best’ policy,” he said. “Propping up sick institutions may look politically appealing in the short term for presidential politics, but in the long term it could easily result in an increase in taxpayer liabilities.”

The proposal will be considered March 25 at a public hearing of an S&L; bailout oversight board, which Brady heads. Brady said he has not made up his mind yet, but said the Administration has the authority to proceed without action by Congress.

Gonzalez disagreed, saying that the S&L; bailout law forbids regulators from protecting S&L; owners.