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August 26, 1990
"How Big is the Bill, Really?"
San Jose Mercury News
By Timothy Taylor
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THERE must be an unwritten law that the highest estimates are most often repeated. For the savings and loan mess, the highest estimates I've seen are from an April 1990 report of the General Accounting Office, predicting that the bill could come to between $325 billion and $500 billion. Divide the larger number by 250 million Americans, and you have the source of the oft-cited number that the tab could run to $2,000 for every man, woman, and child.

By comparison, the original amount authorized by Congress in August 1989 to bail out the S&L's was $50 billion. The impression is that the cost of the S&L bailout has exploded by a factor of 10 in only a year. That impression is mercifully wrong. The GAO figure represents both the money needed to close down the S&Ls and pay off their depositors over two or three years, and
the interest that will be needed to repay that money over the next 33 years. The GAO is perfectly clear on this point, but many who quote its numbers are not. Dividing up that $2,000 per person over 33 years means that it will cost $60 per person per year.

Perhaps more to the point, it generally makes sense to avoid including the interest payments when talking about how much something will cost. If you bought $5,000 worth of furniture with your credit cards, and then did nothing but pay 20 percent interest, you could pay $1,000 a year for as long as you wanted. But that doesn't mean the furniture cost more than $5,000.

Estimates of the cost of paying off savings and loan depositors that do not include interest are actually grouped in a smaller range, from $99 billion to $140 billion.

Even assuming that the costs will inevitably be higher than expected, $150 billion seems like a reasonable current estimate of the cost.

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