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Debate continues over thrift bailout funding.

The single, most expensive project ever undertaken by any nation--the federal savings and loan bailout came to a halt on April 1, when the House overwhelmingly rejected the administration's request for additional funds. Opposition was led by conservative House Republicans who believe the U.S. Treasury has mismanaged the bailout.

The effect of the shutdown is to prevent the federal government from closing down or disposing of bankrupt financial institutions in cities and towns. Instead they remain open, losing taxpayer's money.

Congress has already authorized $105 billion for the bailout and the President has requested an additional $53 billion. Because all of the money is borrowed, current projections are that the final cost including interest will be in excess of $500 billion.

Last month, after rejecting consideration of legislation to tear down the budget firewalls, the Senate approved granting and additional debate on an amendment to require paying instead of borrowing and adding to the record federal deficit. The Senate is now waiting for the House to act.

For cities, the issue of "free" money for the bailout (outside of traditional budgetary rules) comes at a time when the administration and Congress repeatedly claim they have "no revenue to share." Beyond this though, there are several other concerns with the course of the savings & loan bailout.

* What accountability is there to the public for this bailout?

* What will be the impact on the communities list by the next round of foreclosures.

* Will those responsible for the bank failures ever be made to more than a minimum share of the cost to the national debt?

Two facts:

Because the federal government puts its full faith and credit behind any deposit in a federally insured S&L, the President and most in Congress believe there is a "moral objection" to make good--a higher obligation, apparently, than children's needs or fighting the "war on drugs."

Therefore, the House is almost certain to act on bailout legislation when it returns. For local officials, the concern will be what that action means to cities and towns.

House minority Leader Newt Gingrich (R-GA.) and Rep. Bill McCollum (R-Fla.) have led one faction opposed to the administration's bailout request. They want less regulation and to require the federal government to give $2.5 billion to falling institutions--not depositors.

That proposal, characterized as "nursing homes for the terminally ill" by Robert Reischauer, the director of the Congressional Budget Office, would put the federal government into replacing the private market and choosing which banks to save and which to allow to fall in different communities.

It would also amount to an enormous policy change. It would resort to bailing out the shareholders and managers of failing institutions--a federal policy change which Rep. Jim Leach (R-Iowa) described as: "To give egregious thrift managers gifts of cash from the United States government represents to me one of the most egregious moves in my time in government."

The McCollum amendment is opposed by most of the administration aid the House Democrats and Republicans leadearship. But it commands enough support among House Republicans to command a major voting bloc.

At the same time, a number of Democrats have insisted they will block any new borrowing or extention unless accompanied by a requirement for the RTC, the federal bailout agency, to:

* Halt real estate sales that depress local markets;

* Protect natural resources;

* Disclose contracts and settlement terms publicly; and

* Propose ways to cut cleanup costs.

For municiapl leaders, these can be no doubt that the additional money will be eventually borrowed and spent.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Apr 20, 1992
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