The S&L Bailout - and S&L Shame

WHEN the full House of Representatives takes up the savings-and-loan bailout bill this week, two issues will dominate: financing the plan to rescue the collapsing S&L industry, and future capital requirements for thrifts. The Bush administration proposes to set up an off-budget agency to borrow $50 billion over three years to close hundreds of insolvent thrifts and pay off insured depositors. The goal is to avoid blowing a gaping hole in the Gramm-Rudman deficit limits.

The House Banking Committee wants to keep the expenditures on budget - and in full public view - and to waive Gramm-Rudman proportionately. The approach, it says, is more honest.

Each side claims that the other's approach will set a dangerous precedent that will scuttle Gramm-Rudman, which in turn will spook the capital markets.

The plain fact is that a financial disaster the magnitude of the S&L crisis is going to wreak havoc on federal budget discipline; that's the sad cost of letting the matter get so out of hand. Both approaches enlist financial legerdemain, and neither will fool capital markets. On balance, we side with the more straightforward on-budget plan, which certainly doesn't warrant the administration's threatened veto.

On the issue of capital requirements, we have no ambivalence.

Industry lobbyists want to water down the administration's demand that thrift owners maintain a capital cushion - i.e., their own money - of at least 3 percent of loans in cash or other tangible assets. The lobbyists want to go on counting as capital an accounting hologram called good will. Even some of the industry's own members have broken with it in disgust.

These efforts by S&L lobbyists to permit thrift owners to go on speculating solely with depositors' money, shielded by taxpayer insurance, are a disgrace. Ominously, they seem to be making headway. Congress should hold the line against these highflyers who were most responsible for the S&L scandal.