When George Bush moved into the White House four years ago, one of his first challenges was clearing away the wreckage of the savings and loan industry. It turns out Bill Clinton will find himself in the same situation. Treasury Secretary Nicholas F. Brady lists the thrift cleanup as his proudest accomplishment. But in fact the job is far from finished.
The effort to close and sell off insolvent thrifts has been in limbo since last spring. That's when fear of voter retaliation prompted a bipartisan majority in Congress to refuse to extend funding for the Resolution Trust Corp., the government agency set up to handle the salvage operation. The RTC, which has already run through $87 billion in taxpayer funds, found itself without money to shutter 81 insolvent institutions. The delay is driving up the final cost of the cleanup by $6 million a day.
If Clinton wants to stop the bleeding--and it's not clear that the issue is high on his priority list--the task will bring an early test of the new President's mettle in dealing with Congress. In the House, 86 returning Democrats refused to vote for either of the RTC bills that came to the floor during the last Congress. And many of the 63 Democratic freshmen vowed during their campaigns not to spend a penny on the thrift cleanup. A vote on a simple funding bill "would be real tough," predicts Karen D. Shaw, a Washington banking consultant.
HOT POTATO. The Administration can't look for help on the other side of the aisle. Republicans were reluctant backers of the cleanup, even when it was Bush asking for the money. Now, Minority Whip Newt Gingrich (R-Ga.) has threatened to withhold GOP support in retaliation for rules changes that expanded the Democratic majority's control over the House.
Clinton may not want to invest much political capital on the issue while he focuses on broader economic decisions and foreign affairs. But he could pay a steep political price for delay. "If Clinton moves now, it's Bush's problem," notes a Democratic Senate staffer. "If he waits, it can become his problem."
By failing to push the issue early, the White House will only make it tougher to replenish the RTC's coffers. Representative Stephen L. Neal (D-N.C.), chairman of a key House banking subcommittee, says he won't ask for a floor vote--until he holds hearings designed to impress new members with the importance of paying off insured depositors. Otherwise, "I don't see how we could even get it out of committee," he admits.
BUNDLE BUNGLE? Neal is mulling several options for getting a funding measure through Capitol Hill. One, designed to gain liberal support, would mandate an overhaul of the RTC's sales and management practices. Critics charge that the agency's strategy of accelerating asset sales by bundling properties for big buyers prevents small investors from bidding. Another option, Neal says, is to attach RTC funding to a more popular spending measure, such as an infrastructure bill.
If the legislative stalemate continues into the fall, lawmakers would have another remedy--tapping the $30 billion line of credit Congress approved in 1991 for the Federal Deposit Insurance Corp. That money, which would probably be enough to finish the cleanup, was intended to cover expected bank failures that haven't materialized. But next Sept. 30, the RTC's authority to seize failing S&Ls expires, and the FDIC takes over that job. Commercial banks, which have always feared they'd end up paying for the thrifts, one way or another, would be responsible for replenishing the fund.
Bankers will fight hard against any use of FDIC money. But unless lawmakers show more backbone than they have of late, tapping the insurance fund may be the only way the government can bankroll the last act of the sorry thrift spectacle.