This Is a Rescue?

The rescue seemed bold and sweeping. Only 17 days after taking office last year, President Bush presented a plan to clean up the devastated savings and loan industry once and for all. By August, Congress turned that proposal into law. A new agency, the Resolution Trust Corporation, was formed to sell the assets of hundreds of failed thrifts. Cost to taxpayers: an estimated $166 billion over ten years. Against all odds, the Government was tackling the worst financial disaster since the Depression.

Seven months into the cleanup, however, the rescue effort has barely got off the ground. Only 50 of the 386 thrifts taken over by the RTC have been closed or sold. Seized assets are piling up faster than the Government can sell them or even assess their value. By one estimate, the RTC owns 26,800 homes, 773 office buildings, 158 hotels, 205 resorts, 51 restaurants, 236 industrial facilities and 43 mines, among other properties. And the backlog will only get worse, since the agency may need to bail out another 600 institutions. That would bring the total to 1,000 thrifts, twice as many as Bush's plan estimated. "It's blowing up in our face," says an Administration official. "It's one of those things that's so bad that nobody wants to talk about it."

The slow start is costing the U.S. an estimated $14 million a day in operating losses and other expenses. Moreover, as seized property slowly deteriorates under Government ownership, its market value is ebbing. The RTC's commitment to sell several hundred billion dollars' worth of real estate hangs over the market, depressing prices and even harming the loan portfolios of the remaining 2,600 S&Ls. And since the Government is counting on proceeds from the property sales to offset some of the costs of the bailout, sluggish disposal of the real estate could help push the total cost of the rescue to more than $300 billion during the next 30 years. "The cost of carrying that stuff is going to kill you and me as taxpayers," says Richard Kneipper, a Dallas thrift lawyer.

One reason for the delay is the enormous task of building a new bureaucracy. Many RTC offices have only just opened and are operating far below capacity. About 2,300 staffers have been hired and trained so far, but the agency will need thousands more, and finding talented employees has been difficult. "They do a lot of clock watching and bean counting," says a Houston real estate agent. "Everybody's so afraid of making a mistake that you can't get an answer. It's a mess."

Many thrift experts attribute the near paralysis to the way Congress -- at the Administration's insistence -- split responsibility for the rescue between two groups. The RTC's operations are supervised by William Seidman, head of the Federal Deposit Insurance Corporation, an independent agency that polices the banking industry. But a separate panel called the RTC Oversight Board, which is chaired by Treasury Secretary Nicholas Brady, decides RTC policy and controls its funding. Congress agreed to give the Treasury a role so that the Administration would have a major stake in the bailout, but dividing responsibility has prompted feuding between the Treasury and the FDIC. "It is a perfect setup for blaming someone else," complains Seidman.