WASHINGTON -- The price of delaying the saving and loan industry bailout is escalating rapidly and could well surpass $1 billion, officials charged with the cleanup told the House Banking Committee yesterday.
"The cost of delay increases over time. The longer the hiatus, the longer it takes to catch up, and we are now in the second quarter of delay," said Albert Casey, president of the Resolution Trust Corp. and a member of the Thrift Depositor Protection Oversight Board.
The added costs from the delay are approaching $6 million per day, up from about $2.5 million dollars per day during the first quarter of the holdup, Mr. Casey told the committee. Because of gridlock in the House over funding, the RTC has lacked the authority to spend federal dollars since April 1.
Without spending authority, the corporation can take over and keep afloat failing thrifts, but is not able to liquidate an institution's assets and stem accumulating losses.
So far the government has spent $84.5 billion on the bailout. RTC officials estimate an additional $45.5 will be needed to complete the cleanup, bringing the total cost to $130 billion.
"Certainly we agree that substantial progress has been made in the S&L cleanup and we hope that the cost will be more than $130 billion," said Treasury Secretary Nicholas Brady, who chairs the oversight board.
However, Mr. Brady said the board is sticking with its previously released estimate that the total cost of the cleanup could run as high as $160 billion.
Despite the funding delay, no one in Congress is saying publicly that the ultimate cleanup costs will somehow disappear or diminish if they are put off long enough.
In general, the oversight board told the committee that the most cost effective way for Congress to handle the cleanup is to give the corporation the funds it says it needs now to complete the job.
According to Mr. Casey, if the RTC had adequate funding it could rid the industry of all remaining failing thrifts within 12 months and sell off all their assets within 12 months after that.
Separately yesterday, President Bush sent a letter to House Speaker Thomas Foley, D-Wash., urging the House to pass a bill that would provide additional RTC funding.
"The savings and loan cleanup has not been popular," Mr. Bush said in the letter. "But it has been necessary to carry out the government's promise of deposit insurance."
Still, it was unclear how committed Congress or the administration is to a new funding package. In its recent mid-session budget review, the Bush administration estimated that the funding delay is going to push extra RTC costs into fiscal 1993 and 1994. Most of the costs are not expected until 1994.
Rep. Floyd Flake, D-N.Y., said the chances of getting a bill passed by Sept. 1 are "a bit slim."
However, members of Congress including Housing Banking Committee Chairman Henry Gonzales, D-Tex., have repeatedly criticized the President for not putting more pressure on Congress to renew RTC funding.
In April, Mr. Gonzales' committee passed a bill that would have provided $43 billion in additional funds for the corporation. The Senate passed a similar measure. However, the House bill was pared down to $17 billion by the House Rules Committee, which is controlled by the House leadership. And this bill was voted down on the House floor.
Committee members continued to wrangle over the funding delay, acknowledging that many constituents see the legislation as a bailout for thrift owners rather than payment for depositors.
However, there are also other sub-debates preventing some representatives from supporting a bill that would simply renew RTC funding.
For example, Bill McCollum, R-Fla., says he will not support renewed funding without a provision whereby the federal government lends cash to ailing thrifts for the temporary purchase of the thrifts' goodwill. He says this will keep several thrifts from ever failing, as well as save taxpayers as much as $20 billion.
But the oversight board opposes such a plan. "That's just an accounting gimmick, with no real value," Mr. Casey said. And as others have said, Secretary Brady pointed out that the funds appropriated for the cleanup are earmarked exclusively to pay off depositors and not meant to help thrift shareholders.
In previous hearings, other members of the committee, including Joseph Kennedy, D-Mass., have adamantly opposed such a plan, calling it "corporate socialism."
But Rep. McCollum contended that shareholders of non-failing thrifts are already benefiting from the cleanup because their thrifts are buying up the assets of failed thrifts at bargain basement prices.