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House OKs Big Bailout of S&L Insurance Fund : Taxpayers to Cover Most of Cost, Which Could Reach $300 Billion; New Capital Standards Set

June 16, 1989|ROBERT A. ROSENBLATT | Times Staff Writer

WASHINGTON — Giving President Bush a major victory, the House on Thursday approved a massive rescue package for the federal insurance fund that protects savings and loan deposits up to $100,000.

Taxpayers would bear the heaviest burden of the legislation, which could cost as much as $300 billion over the next 30 years.

The package, similar to a bill previously approved by the Senate, would spend billions of dollars to close or sell hundreds of financially crippled S&Ls and pay off their depositors who have insured accounts.

House and Senate conferees now will work on reconciling their differing bills to send a compromise measure to the President within the next few weeks.

Biggest Bailout Ever

The House action, by a vote of 320 to 97, gave the President most of what he sought from Congress when he proposed early this year to undertake the biggest financial bailout in American history. The rescue for the S&L insurance fund dwarfs any other financial aid program undertaken by the U.S. government, and the losses to thrift institutions from fraud will be unprecedented.

Criticizing the bailout as "greater than Chrysler and New York City, a fraud . . . greater than Teapot Dome," Rep. Jim Leach (R-Iowa) said the plan will cost $500 for every man, woman and child in America.

Earlier Thursday, the House overwhelmingly supported the President's demand for strict new capital standards on S&Ls to avoid a repetition of the current crisis.

On a vote of 326 to 94, the House rejected a proposal that would have exempted S&L owners from supplying billions of dollars in new cash as a fiscal foundation for their institutions.

A strong appeal from the President--and the threat of a veto for the vital bill--crushed a nascent revolt in the ranks of House Republicans, who had been subjected to an intense lobbying campaign by S&L executives.

The amendment by Rep. Henry J. Hyde (R-Ill.) would have required lengthy and elaborate hearings before regulators could force S&L owners to put up additional cash to meet the bill's new financial standard: $3 in cash furnished to an S&L by its owners for every $100 in loans made by the thrift institution.

The S&Ls sought to continue their ability to count as capital billions of dollars in good will, which is the intangible value of a company beyond its cash and physical assets.

But the President wants a cash-only standard, and he delivered a broadside against the use of good will as capital in a letter read by House Minority Leader Robert H. Michel (R-Ill.) just before the vote.

Approval of the Hyde amendment "would render this bill unacceptable to me," the President said in his letter. He said that "giving recognition to good will as capital . . . is not justifiable.

"There should be no mistake. This matter goes to the very heart of my determination to clean up the abuses of the past among the savings and loans, about which every voter is entitled to be outraged."

Hyde said his amendment, assuring a hearing before good will could be barred, was needed on the grounds of fairness to S&Ls. Healthy S&Ls had helped the government by taking over failing thrifts and accepting good will certificates when the government had no funds to close the ailing institutions, he said.

"The S&Ls who find themselves victimized by this legislation are not the bad guys, the high-fliers," Hyde said. "The only sin they're guilty of is trusting the federal regulators. They deserve a hearing before the sword falls, before the scarlet letter is placed on their forehead."

But big majorities in both parties voted against the amendment, preserving the standards established in the bill passed by the House Banking Committee.

Voting against the amendment were 212 Democrats and 114 Republicans. It was supported by 38 Democrats and 56 Republicans.

Treasury Secretary Nicholas F. Brady said: "The American taxpayers won a major victory today . . . . We commend the members of the House for their courageous action."

The House adopted an amendment by Rep. Doug Barnard Jr. (D-Ga.) to establish special Justice Department task forces in Dallas and Los Angeles to investigate and prosecute frauds against financial institutions. S&Ls in Texas and California have suffered the biggest share of the national losses from illegal activities.

There are more than 3,600 fraud cases involving losses of $100,000 or more across the nation, including at least 500 cases in California. "There is a big backlog of fraud cases," and the special task forces could reactivate important cases, Barnard said.

"Too much time is being spent on airplanes," with federal attorneys flying back and forth as the Justice Department tries to direct the investigations at long range from Washington, Rep. Al McCandless (R-Bermuda Dunes) said. The attorney general "is not that responsive to a crisis situation; there needs to be a better result," McCandless said.

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