As S&L Bailout Costs Balloon, Concern Grows over Other Debts Liabilities Include Student Loan Guarantees, Bank Deposit Insurance

Article excerpt

THE water keeps growing muddier around the bailout of savings and loan depositors, the most expensive financial bailout in United States history.

Estimates of the ultimate bill have billowed out dramatically in recent weeks - to as high as half a trillion dollars, if market conditions are poor.

So far, market conditions have been poor. The cleanup, riddled with political tensions, is proving slower and more difficult than expected.

The growing bailout bill now has both officials and outsiders growing more uneasy about other liabilities hanging over the heads of American taxpayers.

"The problem is much broader than the S&Ls," says L. William Seidman, chairman of the Resolution Trust Corporation (RTC), the government body whose task is to clean up the industry. "It's government guarantees, which have become pervasive in our economy."

A recent report from the US General Accounting Office (GAO) pegs the federal government's total liability on loan guarantees and insurance at $6 trillion, or five times the total federal budget for this year.

No one sees any signs that most of these programs, which run from student loan guarantees to the insuring of bank deposits, will collapse as the thrift deposit insurance has.

But the federal fund that insures $1.8 trillion of bank deposits has dropped to the lowest levels of assets compared to the amount of money it insures since it was created just after the Great Depression.

Some Texas bank failures and low real estate values have run down the bank fund's assets to 70 cents for every $100 insured. This is about half the level of assets the fund should safely carry, says Mr. Seidman, who also chairs the Federal Deposit Insurance Corporation.

Most foresee the bank insurance fund building itself back up in the early 1990s, not collapsing.

But with real-estate markets weak nationally, fewer close observers are taking anything for granted.

"All of a sudden, everybody's very worried" about the whole range of government guarantees, says Peggy Miller, a lobbyist with Consumers Federation of America. Part of it is politics, she says, as officials like Seidman seek to spread attention away from their own troubled operations. But she adds that the concerns are quite legitimate.

Seidman, though, has not been shy about the problems of the bailout. His independent voice has not won him much favor with the Bush administration. The bailout was one of the first major initiatives of President Bush as president, and White House staff members are sensitive to its political fallout. …

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