Word: bailouts
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...four-day auction brought in more than $800,000. The FSLIC, which currently holds $9.6 billion in assets seized from failed thrifts, has raised more than $300 million this year by selling off their property. That comes to roughly one five-hundredth of what the S & L bailout will cost U.S. taxpayers in the next ten years...
When renegade House Republicans made a last-ditch attempt to soften President Bush's tough savings-and-loan bailout bill last week, there was nothing wimpy about his response. As the House debated the legislation, the President corralled congressional leaders and took his cause to the people. "It is time for the American public and our Administration to say that enough is enough," Bush said. If the House weakened the stringent new regulations of the bill, the President warned, he would veto it. By week's end Bush prevailed when the House approved a strong bailout bill by a vote...
Bush did suffer one setback. He had hoped to finance $50 billion of the cost of the bailout with 30-year bonds issued by a new Government agency, the Resolution Trust Corporation, which will handle the sale of the assets of the 500 insolvent thrifts. Since the bonds will be sold by the RTC rather than the Treasury, Bush hoped they would be classified "off budget," meaning they would not be counted as part of the federal deficit. But by carrying that designation, they would have paid a higher interest rate than Government bonds. That extra interest expense would increase...
While the bailout plan may reassure S & L depositors, the tough capital requirements will spell trouble for many marginal thrifts. James Barth, chief economist of the Federal Home Loan Bank Board, which regulates S & Ls, estimates that 674 thrifts, or almost one-fourth of all federally insured U.S. savings institutions, would fail to meet the new capital standards. As a result, many thrifts would be forced to liquidate or combine with healthier institutions...
...persistent criticism of the Bush plan is that it fails to provide as much money for the bailout as will eventually be needed. By some estimates, the cost of cleaning up the industry could exceed $300 billion over 30 years, with taxpayers picking up two-thirds of the bill. The FHLBB reported last week that the 2,938 Government-insured thrifts in the U.S. posted losses of $3.4 billion during the first quarter of the year. Observes Alex Sheshunoff, an industry analyst: "There's a lot more bad news to come." In the S & L industry, unfortunately, the most pessimistic...