S&L; Bailout ‘Triumph’ Is Fast Becoming a Mess : Thrifts: The program that had been praised as President Bush’s first major victory is running into serious problems and runaway costs--both financial and political.

WASHINGTON — It was George Bush’s first major victory as President, but last year’s huge savings-and-loan bailout is emerging now as a potential economic and political fiasco.

Officials in the multiheaded thrift cleanup bureaucracy are sniping at each other. Delays, perhaps understandable in such an unprecedented and enormous undertaking, are nonetheless adding millions of dollars a day to the cost. And some lawmakers already are talking about the need to shake up the whole operation--only six months old--soon after the November elections.

Although much of the criticism has been aimed at seemingly inevitable early bureaucratic snafus, the problems run much deeper. Indeed, the ultimate cost to taxpayers of the depositor bailout--already estimated at more than $100 billion in direct costs and billions more in interest--is certain to swell.

As a result, the Bush Administration is likely to be tarred by a huge financial calamity that it did not create but cannot escape.

“The S&L; disaster is now on Bush’s shoulders, but the Administration is displaying its usual inclination not to confront problems head-on,” said Bert Ely, a thrift industry analyst. “They should have buried this monster so far underground it wouldn’t come back to haunt them again for at least eight years. They tried to keep down the initial budget costs, but the result is that the political costs are just going to keep adding up.”

In the face of a rising chorus of critics on Capitol Hill, Administration officials strongly defend their handling of the thrift emergency so far.

“Everybody (in Congress) who’s got any connection with this thing is diving for cover,” Deputy Treasury Secretary John E. Robson said in an interview. “I don’t blame them. . . . Nobody’s going to get any medals awarded.

“But the Bush Administration didn’t create this problem,” Robson said. “We stepped in . . . and were the first ones to propose a cure. So I look a little bit unkindly on the notion we ought to take all the lumps.”

Lawmakers agree that Bush deserves credit for proposing a sweeping attack on the savings industry mess after the Reagan Administration and the Democrats who control Congress allowed it to fester throughout the 1980s. But they also contend that officials are moving too slowly to untangle the red tape created by the complex mechanism invented by the White House to mop up a decade’s worth of neglected S&L; red ink.

“The Administration has fumbled the ball very badly in the last seven or eight months,” said Rep. Bruce F. Vento (D-Minn.), chairman of a House Banking Committee task force on the cleanup. “They should have hit the ground running as soon as the law went into effect (last August). . . . There’s nothing wrong with the strategic plan, except they’re not following it.”

The maze of agencies established to oversee the thrift industry reflects the White House’s dream of dividing operating responsibility, which was placed largely in the hands of banking regulators, from political oversight, which was given to Administration officials. But it is also proving to be a bureaucratic nightmare.

The charges of ineptness surfaced again last week when Daniel P. Kearney, a widely respected veteran of Wall Street and Washington, resigned in frustration after only five months as president and chief executive of the Resolution Trust Corp.’s Oversight Board.

The oversight panel that Kearney headed was created to provide operating cash and policy guidance to RTC and the independent Federal Deposit Insurance Corp. as they carry out the cleanup.

“The whole thing is split between two puppeteers--the Treasury Department and the FDIC,” analyst Ely said. “The oversight board (chaired by the Treasury secretary) is Treasury’s puppet, and the RTC (chaired by a separate board headed by the FDIC chairman) is FDIC’s puppet. Kearney quit because he didn’t want to be just another puppet.”

Even thrift officials who defend the RTC start-up acknowledge that the regulatory maze stands in the way of achieving quick results. “This structure guarantees a slower process,” said FDIC Chairman L. William Seidman. “This structure may well be appropriate to ensure controls, but it won’t ensure speed.”

Administration officials also contend that Kearney’s resignation was attributable simply to his misunderstanding of the limitations of the job. They lavishly praise Kearney’s temporary replacement, William Taylor, the top banking regulator at the Federal Reserve. But critics see Kearney’s departure as a powerful symbol of Washington’s tendency to delay politically uncomfortable choices and to avoid clear-cut accountability. These are problems that could add billions of dollars to the ultimate cost of the bailout.

“The problem is that no one is really running things,” said Robert Litan, an economist at the Brookings Institution who specializes in banking issues. “If Bush doesn’t pay more attention, this could easily blow up in his face before the next presidential election.”

If it does, plenty of shrapnel is likely to hit Congress.

The thrift scandal already has contributed to the political demise of former House Speaker Jim Wright (D-Tex.). It also threatens to end the career of several senators who went to bat for Lincoln Savings & Loan’s Charles H. Keating, including Sen. Alan Cranston (D-Calif.).

Lawmakers, eager to prevent those industry officials who contributed to the S&L; scandal from profiting during the cleanup, imposed a host of rules that make it even harder for regulators to dispose of the roughly 500 sick S&Ls; that the government owns or soon will control. So far, only 49 mostly smaller thrifts have been sold to private investors.

Congress not only imposed such tough ethics standards that they exclude many of the most knowledgeable people in the business but also decided that the best way to prevent a rerun of the debacle was to sharply limit S&L; investments and prevent regulators from offering the kind of lucrative deals that they relied on in the past to attract purchasers.

At the same time, powerful interests in Texas and other states where ailing thrifts are concentrated persuaded Congress to protect local property values by preventing regulators from “dumping” assets at bargain-basement prices. As a result, Washington is finding few buyers willing to try to put a new shine on its far-from-dazzling “gems.”

One analyst said the RTC’s operating procedures are comparable to a Wall Street brokerage trying to sell 3 million shares of IBM stock 100 shares at a time. “Unless they change things, they’re going to be eaten alive by the transaction costs,” he said.

To be sure, some of the problems facing thrift regulators are being resolved. On Thursday, the Bush Administration authorized the RTC to borrow up to $44 billion this year in “working capital” needed soon to prevent delays in paying off depositors of failed S&Ls.; The debts are supposed to be repaid as the government sells off loans, real estate and other assets acquired from the thrifts.

But the Administration dodged the difficult question of how the loans should be counted in calculating the federal budget deficit. On that issue, officials promised, they would consult with Congress before doing anything controversial.