Burden For Dad, Grief for Son

By Michael Duffy/Washington

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.