Last week, Americans spent almost $1.5 billion on the Mega Millions lottery for a chance to win a record $656 million payout. That’s nearly $5 for every person in the country. Three people overcame the exceptional odds of one in 176 million, matched all six numbers and will share the enormous prize. The rest of us can complain about all the money we wasted on tickets.
Also last week, Treasury Secretary Timothy Geithner appeared before the House Committee on Appropriations and explained how much money we are wasting making money. So much so that if one of these lottery winners wanted their $218.7 million converted into newly minted nickels, it would cost the federal government about $450 million.
What Geithner revealed was what many people already knew: That many American coins cost far more to make than they are worth. One penny, made of a little copper and a lot of zinc, costs 2.41 cents make. The nickel now costs more than a dime to produce, at 11.18 cents. None of this is new.
The cost of making these coins passed their actual worth in 2006 and the Treasury simply didn’t do anything about it. But now, as part of larger effort by President Barack Obama’s administration to reduce budget deficits by $4 trillion over the next 10 years, Geithner’s department wants to change the composition of those coins that are rattling around in your pocket.
Changing the materials used to make these coins to something like steel and implementing other cost reductions measures would save the federal government $75 million in 2013 – no Mega Millions, but still a large chunk of change. And when someone or something is losing money there is almost always someone or something making a profit off their misfortune.
Meet Kyle Bass, who I mentioned in a previous column. Bass is interviewed in the opening chapter of Michael Lewis’ stellar financial book, “Boomerang,” and has a knack for making spot-on predictions: housing busts (betting against the subprime mortgage bond market); country collapses (predicting Greece’s economic collapse); and, yes, the imminent demise of the nickel, which is made of 25 percent nickel.
Buying commodities, such as gold and silver, is not an unusual way to diversify your portfolio, especially amid economic uncertainty. It is stranger, however, to add common coins to a collection that includes platinum bars. But Bass, explaining to Lewis in 2008 that the value of the metal in a nickel was actually worth more than its face value, bought $1 million worth of them.
“How do you buy twenty million nickels?” Lewis asked.
“Actually, it’s very difficult,” Bass said, and then explained how he had to talk his bank into ordering them and then was hassled by the Feds who were curious why someone would want that many nickels. He then showed Lewis a picture of pallets of stacked nickels stored in a vault in downtown Dallas.
It’s a strange story and, when you first read it, you chuckle at the absurdity of the federal government’s ineptitude and admire the man who was able to capitalize on it. But the length at which the government squanders our money is also infuriating.
If one of those Mega Millions winners wanted an immediate return on their investment, they should simply ask for their payout in nickels. But I doubt the Feds would allow such a large order judging by Bass’ plight to score his.
It’s an example of government waste that completely reinterprets the phrase: “You have to spend money to make money.” Because if you’re the U.S. Treasury, you actually have to lose money to make money.