The chairman of the Senate Banking Committee says he saw "no alternative" to an eventual multibillion-dollar taxpayer bailout of the thrift industry, barring a miraculous turnaround.
Sen. William Proxmire, D-Wis., also called for legislation this session to staunch the flow of billions of dollars from the biggest insolvent thrift institutions.Pounding his fist on the table, Proxmire said Tuesday the nation "simply cannot afford" to let the matter go until the next president takes office in January and a new Congress is convened.
"I feel very strongly we should take action now . . . to stop the present bleeding," said Proxmire, who is retiring from the Senate after this session.
"There's no alternative to a taxpayer bailout unless the industry can absorb it and there's every evidence the industry cannot absorb it," Proxmire said.
Treasury Undersecretary George Gould disputed that, saying the economy in the Southwest, where the majority of the problem is concentrated, could improve.
Gould said the Treasury had not done an independent analysis of the problem and relied on General Accounting Office and the Federal Home Loan Bank Board estimates of the ultimate $25 billion to $30 billion cost of the problem.
The bank board estimates it has $42.5 billion to cover the costs, without having to turn to the taxpayer.
"I urge this committee in the strongest possible terms to resist the mounting pleas for an unnecessary, budget-busting bailout of the FSLIC," Gould said.
"We've been hearing that song over and over and over," countered Proxmire. "Even though it may be a terrific hit against the budget, we must be prepared to do it."
Senators, administration officials and savings and loan chairmen traded blame and disputed the need for a taxpayer bailout at the emotional three-hour hearing on the deepening thrift industry crisis.
The pitch was high from the start with testimony by three chairmen of savings and loans that ripped congressional action in the early 1980s to allow competitive interest rates throughout the industry.
"This was a flawed public policy initiative followed by bungled implementation," said Herbert Sandler, chairman of the World Savings and Loan Association of Oakland, Calif. "We are in a big, big, black bottomless pit. "We're begging you to solve the problem today before it gets worse," Sandler said.
The bank board estimates it will cost the Federal Savings and Loan Insurance Corp. $30.2 billion to resolve its present caseload of 259 insolvent institutions.
Another 250 or so thrifts are foundering, and private estimates range up to $90 billion, including a sizable chunk of taxpayer money, to bring the whole industry back to health.
Sen. Jake Garn, R-Utah, vowing to avoid a taxpayer bailout at all costs, called the criticism of Congress "outrageous."
"If we hadn't taken off interest rate ceilings, the industry would have gone to hell in a handbasket," Garn said angrily. "The money market funds were eating your lunch" by offering depositors higher interest rates.
"You've all made lots of money hanging out the FSLIC sign outside your door," Garn said. "Now your industry cannot simply push to dump all its problems on the American taxpayer."
Proxmire suggested Congress act immediately to deny FSLIC deposit guarantees to institutions that do not comply with federal guidelines.