WASHINGTON — Federal regulators asked Congress on Wednesday for another $100 billion in the next year for the federal bailout of defunct savings and loan associations and warned that the bill would get far bigger if the economy tips into recession.
"It is clear that the problems in the thrift industry are much more severe than was anticipated a little over a year ago," said L. William Seidman, chairman of the Resolution Trust Corp. "The number of troubled thrifts has turned out to be much greater than anticipated, and the market for the assets of insolvent thrifts has turned out to be more difficult than anticipated."
In testimony before the House Ways and Means Committee, Seidman said the RTC will soon exhaust the $50 billion previously approved by Congress and that it needs another $50 billion to make up losses and to protect depositors in the coming fiscal year, which begins Oct. 1. An additional $50 billion to $60 billion in working capital is also needed, he said.
Not counting borrowing costs or the working capital needed to acquire assets and improve the financial condition of thrifts under government supervision, Seidman said, S&L losses may be close to $130 billion. Eventually, he said, his agency hopes to repay as much as 80% of the working capital through the sale of assets from seized S&Ls, but it may take years to do it.
His testimony was another blow to the Bush Administration, which has consistently underestimated the cost of the S&L rescue operation. It also appeared to jolt members of Congress, already facing the prospect of a record budget deficit of at least $250 billion in the coming fiscal year.
The White House Office of Management and Budget estimated only last July that the Resolution Trust Corp.'s costs would be $63 billion in the coming fiscal year, although a mid-August update acknowledged that the actual figure could be $30 billion higher or lower than estimated.
The plain-spoken RTC chief--whose candor has led to reports that President Bush wants him out of the key S&L post--also had bad news for the average American.
"Unfortunately, there really are no alternatives," he asserted. "Additional loss funds will have to come from the American taxpayer."
Seidman added that there may be more unpleasant surprises ahead because of the difficulties of estimating the extent of the crisis and the economy's course.
"We simply do not have the data to estimate accurately the potential cost of shutting down in excess of 1,000 thrifts if the economy and real estate markets around the country enter into a prolonged slump."
In related testimony, the General Accounting Office raised its April estimate of the total cost of the S&L debacle from $325 billion during the next 43 years to a range between $335 billion and $370 billion.
"These revised estimates are in line with our earlier predictions of how costs could easily reach $400 billion and $500 billion if the economy starts working against you," GAO Director Charles A. Bowsher said.
But Bowsher urged Congress to act quickly to provide the additional funds to the RTC so it could move without delay to deal with sinking S&Ls, adding, "Prolonging the operations of insolvent thrifts will add significantly to the ultimate cost."
Robert D. Reischauer, director of the Congressional Budget Office, testified that the total cost of the S&L cleanup would be about $120 billion if it could be resolved overnight--which cannot be done.
"CBO expects that it will take at least 10 years to resolve these institutions and dispose of their assets," he told the Ways and Means panel. "In present value terms, we project the total cost associated with closing failed thrifts through 2000 to be nearly $250 billion."
Without congressional action, Reischauer said, the RTC will run out of money in a few months and the ultimate costs of the savings and loan crisis will only escalate.
"Failure to provide sufficient resources in the past has delayed the cleanup and led to increased costs at the time of resolution," he said.