For the first time, the Reagan administration has agreed that taxpayers`
money is needed to deal with the savings and loan crisis, industry officials close to the administration said late Thursday.
The officials said an agreement was reached this week between the Treasury and the administration to include ”several billion dollars” in President Reagan`s final budget to further the process of shutting and merging more than 500 insolvent savings institutions.
One official said that, after ”extended discussions” between the Treasury and the White House, a compromise had been worked out in which no more than $5 billion would be put in the budget for the 1990 fiscal year to deal with the problem. Reagan is due to submit that budget to Congress early next month.
The compromise proposal would undergo a long and tortuous route before enactment into law.
”The significance is that this is the first acknowledgement by the President that there has to be taxpayer money put toward the S&L problem,”
said one source close to the Reagan administration.
A spokesman for the Treasury would confirm only that the Treasury and White House had reached a final agreement on how to treat the savings and loan crisis in Reagan`s 1990 budget, but he would not disclose details.
What the administration is trying to deal with is, by all measures, the largest government bailout in the nation`s history. With more than 500 savings institutions insolvent and unable to recover, plus another 500 near insolvency, industry analysts and banking regulators have estimated that it will cost $50 billion to $100 billion to pay off depositors and take over the institutions.
In the internal debate, the White House argued strongly that it had to acknowledge to some extent the cost of the crisis and include it in the last Reagan budget. But Treasury Secretary Nicholas Brady, who has been chosen by President-elect George Bush to continue in his post, was concerned about whether he would have enough flexibility in the Bush administration to develop a workable plan and did not want to be boxed in by the Reagan administration. Overriding much of the debate was the concern that the amount allocated to the crisis should not push the budget deficit over the ceilings set by the Gramm-Rudman-Hollings law.
The Treasury has determined that the cost of the crisis will total at least $75 billion to $85 billion, and, if interest rates continue to go up, it could cost $15 billion more for each percentage-point increase.
