Why The Thrift Bailout Is Floundering In MidstreamBy
For a little while, Henry B. Gonzalez looked like a statesman. In 1989, the mercurial chairman of the House Banking Committee surprised observers when he skillfully nursed the savings and loan rescue bill through his fractious committee. But now, the Texas Democrat--who responded to the outbreak of war by calling for President Bush's impeachment--has reverted to form. Legislation providing desperately needed new funding for the thrift bailout is stalled, and the bill's woes bode ill for broader banking legislation on this year's agenda.
The immediate problem is that the Resolution Trust Corp., the agency responsible for selling failed thrifts and their assets, says it needs $30 billion to get through this fiscal year. With its coffers nearly dry, the RTC is falling behind on its plan to unload 225 thrifts by the end of September. The longer the RTC owns the S&Ls, the more money it loses. The agency says the slowdown could cost taxpayers an extra $1.1 billion in the first half of this year. But the effort to provide new funding collapsed on Feb. 26. Subsequent efforts to forge a consensus on the banking panel have failed.
KISS OF DEATH. Gonzalez, who survived a challenge to his chairmanship in December, is running a very democratic committee. During the drafting of the RTC funding measure, he opened the floor to all amendments. Members leapt at the opportunity, adding a requirement that one-fourth of all RTC contracts be reserved for women and minorities, new taxes to pay for the bailout, and a scheme to sock Texas and other states with many failed thrifts for a larger share of the cleanup cost. When the committee looked at its handiwork, most members abandoned the bill, which failed on a 19-31 vote.
In all fairness, controlling the banking panel would tax the skills of a Sam Rayburn. The committee is far more liberal, and considerably more urban, than the House as a whole. But the real problem is inexperience: Of its 52 members, 16 are new to the committee this year, and a dozen are first-termers. Although the panel deals with some of Congress' least glamorous issues, a flood of PAC campaign contributions used to make it attractive. But last election, donations from thrift PACs were viewed as the kiss of death, and members scrambled to give the money back. At the first chance of a better assignment in the new Congress, members abandoned ship.
That led to the influx of the freshmen. Many were elected on promises to clean up the thrift mess and are reluctant to provide more money to the RTC without tough new conditions. "There is a tremendous anger out there in regular, ordinary America about S&Ls," says third-termer Joseph P. Kennedy II (D-Mass.), a leader of the Young Turks. "If you provide another $30 billion, that's $30 billion of pain that will rear its head at election time next year."
Many of the committee's more senior Democrats, and most of the Republicans, are prepared to give the RTC its new funds with few new conditions. But they differ over the details, and majority support for any measure has proved elusive.
The difficulty the panel is having with the relatively simple job of infusing money into the RTC spells trouble for President Bush's ambitious financial institutions reform package. The Administration wants to permit interstate branching and allow banks to diversify into new businesses. But the history of the S&L bailout "makes it very difficult for a banking bill to get through," says Steve Verdier, a lobbyist for the Independent Bankers Assn. It could be a long, long year for the Banking Committee--and for the President's legislative agenda.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- The Two Words That Will Help Get an Airline Upgrade Over the Phone
- Brighter U.S. Growth Outlook Emboldens Fed on Rate-Hike Course
- Stocks Under Pressure as Dollar Pauses; Pound Dips: Markets Wrap
- Stocks Turn Lower, Dollar Rises After Fed Minutes: Markets Wrap
- Risky Crypto Bet Dents Dennis Gartman's Retirement Account