Fools and Their Money

In the late 1980s, we had a savings & loan (S&L) crisis. It seems to have been caused by President Reagan's decision to reduce regulations on S&Ls. Hundreds of banks wound up more or less bankrupt. I worked in the Resolution Trust Corporation, a government agency created to clean up the mess. Sometime in the late 1990s, I saw an estimate that the S&L crisis cost the nation at least $160 billion. I did a calculation. That appeared to be about the same amount as the total of all federally insured student loans through 1995. In other words, the S&L crisis cost this nation as much as if we had just given out grants, instead of loans, to every student who got a federally insured loan in the 30-year (or so) period ending in 1995. When I made that calculation, I thought it was just a convenient way of conceptualizing what it meant to waste $160 billion. But now I'm thinking about how much we're spending on Iraq and tax cuts and all kinds of things we can't afford, and it occurs to me: this is the classic situation. This is a fool and his money. When your money burns a hole in your pocket, it then falls out onto the ground and troubles you no more. But if you aren't carrying around that money in your pocket, then this scenario does not apply. If you have already invested the money someplace where it was badly needed, then you don't really have the option of throwing it away. What I mean is that I am beginning to think the government really should have spent that $160 billion on giving grants to college students. Or if not on that, then on something else comparably productive. And if the government had kept on doing that -- had kept on giving grants to students, say -- then, when it came time to march off to war, President Bush would have had to explain to parents why they would now be paying the vast sums needed to prop up the universities. And then middle-class Americans would have had a strikingly more informed concept of what overthrowing Saddam Hussein might entail.