TIME: Almanac 1993/TIME Almanac 1993.iso/time/060490/0604208.000

Text File | 1992-08-28 | 3.8 KB | 83 lines

                    N                                                            BUSINESS, Page 67

Burden for Dad, Grief for Son


    For months, the Bush Administration has viewed the savings
and loan crisis much as a fire hydrant regards an approaching
dog. White House officials generally dismissed signs that the
cost of the bailout was steadily rising. Treasury Secretary
Nicholas Brady contended last October that the $50 billion to
be borrowed under Bush's S&L bailout plan would be plenty to
do the job. "I know of nothing that would change my view," he
said. Even as Treasury officials and banking regulators
bickered over the need for more money, Bush aides downplayed
the mess. "It's just not on our scope," a senior White House
official said confidently in February.

    That serene attitude has been shelved. Brady told Congress
last week that the size of the disaster is much bigger than he
predicted. The Secretary estimated that as many as 1,037
institutions -- almost half of all U.S. thrifts -- may have to
be merged or closed to stabilize the industry. For the cleanup,
the Government will have to borrow $90 billion to $130 billion.
Adding interest charges and other costs, the bill could top
$500 billion during 30 years.

    Brady's announcement was, on one hand, simply an exercise
in candor, an acknowledgment of what other experts have been
saying for more than a year. But Bush and his wily Budget
Director, Richard Darman, have a second agenda. Now that they
have convened a budget summit with congressional Democrats, the
White House would prefer to remove the rising bill for thrift
closures from the deficit talks to make it easier for both
sides to reach the elusive Gramm-Rudman targets. A speedy
budget deal, Darman believes, will lower interest rates and
keep the economy growing. But other participants, notably
Democratic Congressman Charles Schumer of New York, say that
moving the thrift bailout off budget -- instead of paying for
it out of current revenue -- is dishonest because it will only
increase the cost of borrowing over the long term.

    Bush declared last week that the S&L debacle causes him
"great concern," but tried to hover well above the fray,
contending, "We don't know the impact on the taxpayer yet." One
likely reason for his evasion: on the same day that Brady
unveiled the new estimates, Bush's third son, Neil, was
explaining to the House Banking Committee his role in the
downfall of the Silverado Savings and Loan of Denver. Bush, 34,
is under investigation for potential conflicts of interest as
a director of the thrift. In 1986 he voted to approve a $106
million loan for a business partner, real estate developer
William Walters, who had earlier loaned Bush's oil company $1.5
million. Bush, who was called before the committee in large
part because of his last name, saw no conflict in the
transaction. Walters, he said, "was a partner in my business,
but I was not a partner in any of his businesses."

    In another case, Bush sought a $900,000 line of credit on
behalf of developer Kenneth Good, who several years earlier had
given Bush a $100,000 no-risk loan that was eventually
forgiven. "I know it sounds a little fishy," Bush testified.
"The loan [from Good] was never meant to be repaid unless there
was a success" in a commodities venture in which Bush took
part. Federal thrift regulators, who question young Bush's
explanations, are seeking an order barring him from repeating
any such conflicts. Moreover, he may face civil suits from
Silverado's depositors. While the younger Bush's role in the
thrift's failure may have been a small one, it was a telling
example of what went wrong in the S&L industry. Silverado alone
will add $1 billion to the cost of the thrift mess.


By Michael Duffy/Washington.