ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, July 13, 1996 TAG: 9607150049
SECTION: BUSINESS PAGE: A-4 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
A new congressional study puts the price tag of the U.S. savings and loan debacle at $480.9 billion, much higher than previous estimates of the government bailout.
Friday's General Accounting Office study arrives at the new figure by calculating indirect costs, such as the interest on government spending for the thrift rescue in the 1980s and early 1990s.
``It was very difficult from outset to determine the cost of the S&L bailout,'' said Dimitri Papadimitriou, executive director of The Jerome Levy Economics Institute. ``I'm not surprised the numbers are as high as they are.''
In the 1980s, hundreds of thrifts became insolvent and were taken over by the government because of a variety of factors: S&Ls' aggressive expansion into speculative real estate; a mismatch between high interest rates thrifts paid for deposits while earnings were low from long-term loans; and government policies that kept S&Ls open despite low capital levels.
The S&Ls that survived this debacle are generally very healthy, with earnings and capital levels near all-time highs.
``The bad news in this report is that the cost of the failure of many thrift institutions, with interest, approaches a half a trillion dollars and that taxpayer accountability due to bonds issued will continue through the year 2030,'' House Banking Chairman Jim Leach, R-Iowa, said in a statement.
``The good news is that America's financial institutions today are stronger and sounder than in many years,'' he said.
The General Accounting Office, Congress' auditing and investigative arm, found total direct costs of $152.6 billion, which includes activities of the former Resolution Trust Corp., and the Federal Savings and Loan Insurance Corp., the industry's former insurance fund. This was the figure generally used by industry analysts in recent years to describe the size of the bailout.
But the General Accounting Office said a significant share of these direct costs were paid by the government at a time of a growing federal budget deficit, which probably resulted in the Treasury's borrowing extra money to pay for the crisis.
It assumed that $99.3 billion in government spending for the Resolution Trust Corp. and FSLIC would be financed for 30 years at 7 percent interest, resulting in an interest expense of $209 billion.
Other interest expenses include $88 billion for REFCORP bonds and $23.8 billion for FICO bonds, both of which were sold to finance the cleanup. Also included was $7.5 billion in tax benefits under FSLIC assistance agreements.
Robert Davis, government relations director for the S&L trade group America's Community Bankers, objected to the General Accounting Office's calculations on the interest expenses.
``While it is of course possible to add up the total payments of long-term government bonds, that is equivalent to looking at the long-term mortgage payments over the life of the mortgage,'' Davis said. ``And that is not the cost of the home.''
He argued that in the case of a home, its true value is the current market price of the property rather than the mortgage cost.
Not factored into the General Accounting Office study is the money the government will have to pay the savings and loan industry as a result of a Supreme Court decision last week concerning changes in government accounting for thrift mergers. The accounting changes could cost taxpayers an additional $9 billion to $20 billion.
LENGTH: Medium: 69 linesby CNB