A Self-Help Plan for S&Ls FINAL Edition

• Published in: The Washington post
• Main Author: Gould, George D
• Format: Newspaper Article
• Language: English
• Published: Washington, D.C WP Company LLC d/b/a The Washington Post 05.05.1987
• ISSN: 0190-8286

This time, however, the industry wants to shrink its contribution to FSLIC to a fraction of the necessary amount. If enacted, such a measure would leave FSLIC short on cash and long on problems. Then the S&L industry would claim it had contributed enough. In the name of safety and soundness, the burden would shift to taxpayers. The deteriorating condition of the bottom tier of the S&L industry and the extent of FSLIC's weaknesses are widely acknowledged. They are not even an issue in the debate. While 80 percent of the savings institutions in this country are making big profits, FSLIC reports that 445 thrifts nationwide have no capital. Of these, 297 lost money in the third quarter of 1986, despite advantageously low interest rates. When a thrift without capital loses money, it is in effect using insured deposits to pay current expenses and losses-an extremely dangerous situation. Eventually, FSLIC will have to foot the bill for these insolvent institutions. Case resolutions become more costly the longer they are postponed. Congress' own auditor estimates that insolvent institutions-those with no capital-are losing $6 million per day, or more than $2 billion per year. The GAO recently testified that FSLIC is insolvent, with a deficit of more than $3 billion as of the end of 1986. And this week, GAO boosted this figure to $6 billion. GAO believes the write-down is necessary to reflect FSLIC's commitments to 60 thrifts that have severe financial problems. Hundreds of other brain-dead S&Ls are waiting in line, but FSLIC cannot afford to take them on.