1. Archive

Lack of financing will stall bailout

Published Oct. 18, 2005

Congress' refusal to provide more money for savings and loan bailouts will delay the closing of failed institutions for months and add millions, or even billions, of dollars to taxpayers' costs, analysts said Monday. Legislators' election-year squeeze left the Resolution Trust Corp., the bailout agency created last year, without the funds needed to close more than 300 insolvent or near-insolvent thrift associations.

That means the institutions will continue to run losses, funding themselves with high-interest deposits. That in turn weakens healthy competitors by forcing them to raise their deposit rates, raising the specter of additional failures.

"It's going to cost us additional money. We're going to have to slow up the resolution of failed thrifts," said L. William Seidman, chairman of the trust corporation.

He estimated the cost of a three-month delay at $250-million to $300-million. The Congressional Budget Office put it at $300-million to $400-million. Bert Ely, a private analyst in Alexandria, Va., estimated it at $2-billion to $2.5-billion.

The added costs, although spread over the life of the bailout program, will make it even harder for the government to meet the $500-billion deficit-reduction goal in the five-year program adopted over the weekend.

The trust corporation, which had handled 287 failed thrifts through the end of September, has enough money left to pay acquirers to take over an additional 65 to 75 small institutions by the end of this year, said spokesman Steven Katsanos.

But that would still leave it with more than 100 S&Ls to handle on top of several hundred others judged to be near failure.

Also, financing disruptions tend to discourage potential bidders and make it more difficult for the agency to hire the outside

experts it needs, he said.

The agency already has been forced to delay seeking acquirers for 18 large institutions until its funding is secure, Katsanos said.

Congress' Sunday morning revolt against further spending left Bush administration officials and Democrats blaming each other for the expected consequences.

Rep. Henry B. Gonzalez, D-Texas, chairman of the House Banking Committee, said Treasury Secretary Nicholas F. Brady's refusal to testify in support of the administration's request "created an unfortunate atmosphere."

"They've got to get out of that bunker over there in the Treasury and come over here and join the people," he said.

Private analysts were unimpressed by both sides' arguments. "They were playing a game of chicken to see who blinks at the last minute," Ely said. "The House wanted Brady to come up and bow and scrape and he refused . . . nobody blinked, so we ended up with a delay. A costly one."