WASHINGTON -- The cost of the savings and loan bailout is rapidly escalating as a result of the real estate slump and the economic impact of the Persian Gulf war on public confidence, top government officials said yesterday.
Treasury Secretary Nicholas F. Brady told the Senate Banking Committee that bailout costs had climbed to $130 billion -- the top end of the administration's estimate a few months ago -- and he indicated that the costs could keep growing.
The $130 billion does not include an additional $70 billion the government estimates will be required to carry out 1988 commitments on sales of defunct savings and loans that were made before the administration took over the program in 1989.
It also does not include interest payments on borrowed funds, an amount that could raise the total long-term cost to more than $500 billion, the government estimates.
Mr. Brady said the failure of Congress to provide additional funds before last November's election had hurt the pace of the bailout, adding $250 million to $300 million to the cost.
That remark caused a partisan stir in the committee, with Sen. Tim Wirth, D-Colo., charging that Mr. Brady was engaging in "nonsensical
Mr. Wirth read a catalog of eight attempts by the Senate panel, between July and October, to secure a specific request for new funding from the administration -- all of them unsuccessful until 10 days before Congress adjourned.
A procedural move in the House blocked added funds in the last hour of the session.
As a result, the administration took advantage of an error that had been made in the drafting of the 1989 law that created the bailout machinery, allowing it to obtain $18.8 billion in short-term borrowing.
These funds will run out by the end of February, Mr. Brady said.
"I am increasingly concerned about the constantly-revised-upward estimate of the cost of this matter," Sen. Paul S. Sarbanes, D-Md., told Mr. Brady. "There is not enough explanation of why the cost is going up."
With an increasing lack of confidence in how the bailout is being managed, the panel's Democrats turned a cold shoulder to a request by Mr. Brady for an open-ended appropriation to continue the rescue.
Mr. Brady said permanent financing would enable the administration to move "aggressively" to sell off or merge defunct thrifts without costly interruptions.
But Sen. Donald W. Riegle Jr., D-Mich., committee chairman, said he
would move swiftly to provide additional funds. He also said, however, that it would be "inappropriate" to pass long-term financing in view of concern on Capitol Hill with the performance of the bailout agency, the Resolution Trust Corp.
Mr. Brady, who serves as chairman of the Oversight Board, which determines policy guidelines for the bailout, asked Congress to provide an additional $30 billion in the current fiscal year to cover losses.
The $30 billion would be in addition to the $50 billion Congress provided to start the program in 1989, most of which has been spent.
Mr. Brady said the administration also would spend $47 billion this year in so-called working capital -- borrowed funds that would be returned once the assets of insolvent institutions were sold. This cost is not included in the amount appropriated by Congress.
Yesterday, Mr. Brady said the real estate slump had escalated the number of troubled thrifts that needed to be taken over by the government and the cost of shoring up assets of ailing institutions so they would be attractive to potential buyers.
He said the gulf war "has increased the hesitance of potential buyers to make investment commitments."
With the addition of nearly $80 billion in new funds this year, the administration hopes to bail out about 225 more institutions.