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S&L Buck Passing BY DEBORAH LUTTERBECK New York City p ROCRASTINATION IS NOT just the thief of time; it also is the thief of money. Consider the seemingly everlasting savings and loan saga. Time and time again we find the Resolution Trust Corp. groveling before Congress, begging for forgiveness for past underestimates and providing new guesses about what taxpayers must pay to shore up this industry. But the estimates never quite seem to cover the cost. Many lawmakers would rather wait until after the November election to deal with the cold fact that the longer the bailout lasts the more it will cost. That leaves Henry Gonzalez as one of the few members of Congress who is not afraid of the RTC. Earlier this year, the House of Representatives could not muster the courage to grant the RTC . A reprieve on a deadline, which would have allowed the agency to spend the money it had on hand. However, for Gonzalez, who chairs the House Banking Committee, “it is absolutely essential that we enact a refunding of the Resolution Trust Corporation at the earliest possible moment.” So Gonzalez has come up with a counteroffer, officially known as “The Resolution Trust Corporation Funding and Cost Reduction Act of 1992,” H.R. 4765. Unlike the measure that recently failed on the House floor, the Gonzalez bill not only would loosen up the funds already in the pipeline, but it would add an additional $25 billion. The catch is, unlike the other measures that have spent billions in public money to clean up the thrift mess, G9nzalez’s bill would require the savings and loan industry to contribute a small fraction of the additional funds for the bailout. While thrift industry officials applaud the Chairman’s plan for providing additional funds to the RTC, they are up in arms about the provisions that would make healthy savings and loans bear some of the burden for cleaning up failed thrifts. In the fine print of the Gonzalez plan, Section 3 stands out like a regulatory sore thumb for the industry. If,enacted, it will require the thrift industry to pony up an estimated $500 million a year. That translates into about 25 percent of the profits all savings and loans made in 1991. “We think it is uncalled for” was the assessment from Texas Savings and Loan League President Tom King. He asks rhetorically, “Why penalize those people who have been abiding by the rules?” King believes Gonzalez’s proposal treats the whole savings and loan industry as if it were “guilty of some sin.” In fact, Deborah Lutterbeck is an economics writer living in New York City. Henry B. Gonzalez King thinks, while there is plenty of blame to go around, most of it should fall on the federal government: “They guaranteed it, and they did not supervise it properly from the starting point, it’s the federal government’s fault.” The financial landscape in Texas is particularly stark. Over the past five years, King said already 213 thrift institutions have failed; 68 are left standing. According to the RTC, the Lone Star State had more than its share of bailouts. Texas alone has absorbed $42 billion of the $204 billion that has been spent by the federal government to make good on deposits. The runner-up is California with $29 billion in deposits. The figure for Michigan, where the auto industry has been running-on empty, is a modest-sounding $287 million in deposits. New England’s largest state, Massa. chusetts, has had about $3.9 billion in deposits supported by the federal government. So, why shouldn’t the healthy thrift institutions help with the bailout? Thrift industry lobbyists think that a special assessment on solvent thrifts, like the one included in the Gonzalez plan, could actually push some struggling institutions into the red, thereby increasing the need for bailout funds. That of course means that more money would need to be spent on the bailout. Thrift lobbyists also argue that the industry is already carrying a heavy load. Jim Eberle, spokesman for The United States League of Savings Institutions, points out that the industry as a whole has been contributing about $1.6 billion a year to clean up the industry. In 1989 the thrift industry forked over $1.9 billion to buy $30 billion worth of special bonds from the U.S. Treasury. The rest of the bailout has been funded by the taxpayer. In recent months there have also been efforts SABRINA BERMINGHAM to have the taxpayers not only continue to help back the depositors, but also provide some relief to thrift stockholders. Here is how it would work: Rather than waiting for a thrift to fail, the RTC could inject funds into an ailing institution, which might recover, in turn costing less than if the thrift failed. This is not a policy that has found any favor with Gonzalez. In the past he dismissed such efforts with phrases like, “I thought capitalism meant that stockholders and management assume the risk not taxpayers.” This is especially relevant to Texans where most of the clean-up has been done, and no one benefitted from early intervention. King, from the Texas Savings and Loan League, described the early days of the RTC campaign in Texas as a “scorched earth” policy, which closed down troubled savings and loans rather than attempted to help them survive. What seems clear at this point is that Gonzalez has no easy path for his legislation. Facing an election year, the House leadership has shown only lukewarm support for more RTC spending, and the President has not thrown his weight behind it. Of course this is understandable. The RTC has a way, of polluting everyone who gets near it. The corporation has consistently embarrassed those who went to bat for it, routinely blowing estimates of what it will cost to complete the clean-up. For instance, in August 1988, the Reagan Administration said it would cost $19 billion; in February 1989 the estimate was raised to $40 billion. By July of 1990 the price was $107 bil lion; in June, 1991, the forecast was a whop ping $160 billion. Last fall, William Casey, the Continued on pg. 17