The government is putting up $6.8 billion to rescue five savings and loans in Texas and one in California, but no one expects that the bailouts will end there. The taxpayers are going to be forced to pledge many more billions - at least $50 billion - to restructure or liquidate insolvent thrifts.
In the Texas bailout, the Federal Home Loan Bank Board agreed to provide $5.1 billion over a period of 10 years to a group of investors. They, in turn, will consolidate the five insolvent thrifts, which have assets of $12.2 billion, into a bank, to be called First Texas Bank. The investors will put up $315 million.To rescue American Savings & Loan of Stockton, Calif., the government is putting up $1.7 billion, and an investment group will add $350 million now and $150 million more over a three-year period.
Though the private investors' commitments are minuscule compared with the government's, the alternative - paying off the depositors - would have cost the government even more. If, however, the bailed-out thrifts fail again in five or 10 years, a second rescue would push the cost well in excess of what a liquidation now would have come to. Another troubling aspect of the bailout is that little is known of all the terms of the deals.
From the taxpayers' standpoint, the broader problem is that there are more than 200 insolvent thrifts around the country, and the federal insurance corporation that protects depositors' accounts does not have enough money to meet the obligations it faces. That means Congress will have to bail out the insurance corporation that is bailing out the savings and loans.
When Congress does so, it should also insist that the free-wheeling risk-taking that has been allowed under deregulation be sharply curtailed as the price for insurance furnished by the taxpayers.