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PRESIDENT BARACK OBAMA: Financial institutions have plenty of high-powered lawyers and lobbyists looking out for them. It's time consumers had someone on their side.
(SOUNDBITE OF SONG, "I NEED A DOLLAR")
ALOE BLACC: (Singing) I need a dollar, dollar. A dollar is what I need. Hey, hey. Well, I need a dollar, dollar. A dollar is what I need. Said, I need a dollar, dollar. A dollar is what I need.
DAVID KESTENBAUM, HOST:
Hello, and welcome to PLANET MONEY. I'm David Kestenbaum.
JACOB GOLDSTEIN, HOST:
And Jacob Goldstein. Today is Tuesday, December 13, and that was President Barack Obama you heard at the top. He was talking about the Consumer Financial Protection Bureau.
KESTENBAUM: Today we have breaking news about a story that we reported on this summer, the Presidential $1 Coin Program. Here I'm going to let Treasury Secretary Tim Geithner do the honors.
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TIM GEITHNER: I have directed the U.S. Mint to suspend the production of new Presidential $1 Coins for circulation, effective immediately.
GOLDSTEIN: So Kestenbaum, let me just jump in right here and give you today's Indicator. It's 1.4 billion. There are 1.4 of these dollar coins sitting unused in government vaults. The White House said today if the program kept going, the estimate was the Mint was going to produce another 1.6 billion of these coins through 2016. With this change that was announced today, they will produce only enough to satisfy collector demand. I don't know exactly how many that is, but I assume it is a far, far lower number than 1.6 billion.
KESTENBAUM: The first president to feel the sting of limited release will be Chester A. Arthur. His coin is set to be released in the spring of 2012. Vice President Joe Biden today joked, as will shock you all, the call for Chester A. Arthur coins is not there.
GOLDSTEIN: So on today's podcast we're going to explain how we ended up with this messed-up program in the first place. David, this is actually a story that you reported earlier this year with Robert Benincasa. He works on NPR's investigative team.
KESTENBAUM: The story aired on the podcast over the summer I hosted with Adam Davidson, and we're going to rerun part of it for you now.
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KESTENBAUM: Come with me. Let's start here. I'm going to take you to an underground government vault.
ADAM DAVIDSON, BYLINE: I'm picturing, like, Fort Knox. Like, some huge, armed place in the middle of an army base in the middle of nowhere.
KESTENBAUM: Yeah. Not exactly. The one we went to is in Baltimore. It's right across the street, actually, from Camden Yards, where the Orioles play baseball. I'd passed by it hundreds of times when I used to live there. It just looks like this government building. But in the basement, there's some pretty heavy security.
AMY ESCHMAN: This is our coin vault. It's roughly the size of a soccer field.
KESTENBAUM: Adam, meet Amy Eschman. She works for the Fed. Her title is assistant vice president of cash operations. And the last layer of security when we get down there, it's actually just this chain link fence with two Master padlocks. It takes two separate employees - each of them has a separate key - to open the two locks. After that, we walk into this big room. It looks more like an underground warehouse than a vault. Think of Sam's Club, but Sam's Club if it only sold one thing. I'm looking at aisles filled with metal bins. In each bin, there are plastic bags filled with coins.
ESCHMAN: That aisle there is marked on the end. I think that's about 7 million. Is that right, Ed? Six million, seven-hundred thousand for that aisle of coin right there.
KESTENBAUM: These are not just any coins, Adam. These are dollar coins.
DAVIDSON: Dollar coins. So that's where they all ended up. I have this really distinct memory of coming back, I think in the same year I went to Israel and Canada when I was a kid, and they had these coins that were sort of the equivalent of a dollar. And I thought, that is so much better. I loved that idea of having just, you know, a dollar coin in your pocket. You can just grab it. You don't have to take out your wallet and everything. And I remember asking my teacher about it, and they said, oh, yeah, the government's going to turn us all into dollar coin-using people. They're going to get rid of the paper dollar. But I think that's the last time I thought about dollar coins because I haven't seen one in years.
KESTENBAUM: It's nice to hear your enthusiasm, Adam, because I think it turns out you in America, you are pretty much alone in that love, in the desire to carry around a bunch of heavy coins in your pocket that make a lot of noise, coins that a lot of people feel look confusingly like quarters. And I'm here to tell you the government right now is making way, way too many of them. In fact, the Fed is running out of space. We learned that the Fed had to redesign one of its vaults in Texas. There are vaults like this one in Baltimore all around the country. Want to know how many dollar coins are in the vaults?
KESTENBAUM: One billion, with a B. Billion.
DAVIDSON: That is a lot of dollar coins.
KESTENBAUM: Yeah. All right. So now I'm going to tell you why we have so many coins. It's because of this law that Congress passed. I have it here for you. Short title, this act may be cited as the Presidential $1 Coin Act of 2005. The idea was that they were going to mint a new series of dollar coins with the faces of all the presidents on it. And the idea was - it was not a terrible one. The hope was that they could turn the nation into a bunch of Adam Davidson dollar coin enthusiasts. It was based on the success of the 50 State Quarters Program.
DAVIDSON: Yeah. That really worked. I remember, you know, people actually feeling excited. You'd see articles about it. You know, what's New Jersey's image going to be? I remember The Onion had this funny story, South Dakota decides to use Mount Rushmore on their quarter. 'Cause the idea was, what else does South Dakota have to use? So anyway, that got - I mean, it certainly got me - it got lots of people excited about quarters, saving quarters, using quarters. So I can see why they thought, well, now we'll do it with presidents. People will love that, too.
KESTENBAUM: Right. We'll do it with presidents, and we'll do four-year. We're going to roll them out the way we rolled out the quarter program, one at a time.
DAVIDSON: But I still see those quarters. Like, I still like to look at the quarters I have and see what state it is. I have never seen a dollar coin with a president's face on it.
KESTENBAUM: Well, a lot of them are in vaults like this one. Carrie Cord (ph), the cash manager, put her face up to one of the plastic bags.
CARRIE CORD: Harrison, Andrew Jackson, John Adams. I think I need a magnifying glass.
KESTENBAUM: Adam, there are also a surprising number of those Sacagawea coins in these bags. Do you remember those?
DAVIDSON: She's a Native American. I think she was a teenager who was a guide for Lewis and Clark.
KESTENBAUM: Right. Right. So that was our previous attempt at the dollar coin. The truth is that none of these coins are very popular. Here's this crazy report we found from the Fed to Congress about the Presidential $1 Coin Program. Check out Figure 3. Just one of the things that made me jump up.
DAVIDSON: That is awesome (laughter). So for listeners at home, Figure 3 is a graph. It just shows a line shooting straight up to the right. I mean, if this was your company's profits, you'd be doing really, really well. But I think this is, for the Fed, a troubling sight, right? Let's see. It says that since this program started in the first quarter of 2007, we've basically have been minting presidential coins and just sending them directly to the vault. Because this is how many coins are stuck in a vault not being used.
KESTENBAUM: Right. So if you look at that chart, like, time goes over to the right, every year, something like 200, 200-plus million new coins are piling up in the vault.
DAVIDSON: This ends in the second quarter of 2010. So about a year ago, and it's over a billion dollars.
KESTENBAUM: Right. And it's still going up. So the projection by the Fed is that by the time this program is over, we could have 2 billion coins in vaults.
DAVIDSON: And this is actually something we were talking about the other day with the PLANET MONEY team, that for a person, the idea that you have a billion dollars sitting around your house somewhere...
KESTENBAUM: That's awesome.
DAVIDSON: That's awesome. That's great news. It's like you have the world's most wealthy couch, you know, where all your coins fell out into. But we should remind people, money is a very weird thing. When the Mint mints new coins, before they go out to a bank to be integrated into our financial system, into our money system, it's not money yet. Money in a vault is not counted. It's not an asset of the U.S. government. For it to become part of the money out in the world, a bank actually has to call up and say, hey, we need a bunch of dollar coins, or we need a bunch of 20s or five dollar bills or whatever it might be. That's how money goes from being sort of a physical object with no real-world value to actual currency that can be used.
KESTENBAUM: Right. This is not real money yet. This is money waiting to be born. You can think of them right now as pretty little ornaments. And it is a lot of work to store these things. Each bag of 2,000 coins weighs, like, 35 pounds.
Can I try and lift it up? OK.
CORD: We actually have some posters in our break room that have proper lifting and stretching, and they have time, if they'd like, to stretch throughout the day.
KESTENBAUM: So Adam, there's storage costs. You've got to maybe modify your vaults. You've got to pay the guy who's moving all these coins around. But the bigger waste is actually the cost of making the coins. It costs 30 cents to make each coin. So you've got a billion coins times 30 cents. Do the math. That's $300 million so far. And standing there in the vault, I thought, looking at this stuff, I thought, I am staring at what is essentially this big, weird art project. We are making all these coins, and they just sit in a vault.
DAVIDSON: Except it's a very conceptual art project, right? Because unless you're a reporter with special permission, or you work at the Fed, you're never going to see this weird conceptual art project. Why do they keep making more, though? I mean, there's a billion sitting there that nobody wants, and you're telling me they're going to make a billion more that nobody wants? Why can't the Mint just stop making more coins?
KESTENBAUM: That is the big question hanging over this whole thing. It took us a while to figure out. It turns out there are two reasons they can't stop making all these coins, two reasons they're piling up. First, Adam, please turn to Section 104, subsection 3 of the bill.
DAVIDSON: All right. OK. You circled it for me. (Reading) The board of governors of the Federal Reserve System and the secretary of the Treasury shall take steps to ensure that an adequate supply of one-dollar coins is available for commerce and collectors.
So they've way more than done an adequate supply.
KESTENBAUM: Well, they're normally for, like, special edition coins people might want to collect. People who want them just order them from the mint. And in that situation, you don't get a ton of excess coins. But this law has the Federal Reserve trying to get the coins out there. So the way they do it is they go to the banks, and they say, how many coins do you think you're going to need? How many George Washingtons do you think you're going to need? And so the Fed gives the bank the number they ask for. But there's a problem. A lot of the time, that number isn't right. There are extra coins. And then even when the coins do make it out there into the world because people are excited and want them initially, they sort of stop being excited as time goes by, and then some of those coins come back.
DAVIDSON: All right, now I'm picturing some young, enthusiastic kid who, you know, for his birthday or bar mitzvah or Christmas or something gets a bunch of these presidential coins, and he's all excited. But slowly, one by one, he realizes, hey, I can actually buy stuff with those. And he takes, you know, his Andrew Jackson dollar coin down to the candy store to buy some new coconut M&M's. And so now the candy store guy has it in his coin tray, and maybe he tries a few times to give it in change to someone, and people say, I don't - what it is? I don't want that; give me - you know, give me a dollar bill.
And so eventually, the candy store guy deposits it with his other cash deposits in the bank, so now the bank has one. And nobody's asking them. When people come in and say, hey, can you break a 20? - or I want to take some money out - nobody says, oh, and make sure to give it to me in presidential dollar coins. So they have it as extra. So when they go to trade in money with the Fed, they just give them all their dollar coins and get back dollar bills. Is - that's the picture - right? - that unless people want them, they just end up back at the Fed. The Fed can't make it a law that people have to use them.
KESTENBAUM: Right. And normally, that doesn't matter. Like, with the quarters program, there's ever sort of slowly increasing demand. So if people return some of the special quarters, it's fine. They just put them out there as demand generally expands. But that is not happening with the dollar coin program, so they just wind up in a vault never to be seen again, unless you happen to be on a tour of the vault.
DAVIDSON: So reason No. 1 for why these coins keep getting minted and end up in this vault is that the law says that you have to mint enough to meet that initial moment of excited demand, but it doesn't really take into account the fact that that demand seems, in the case of presidential coins, to drop off dramatically very quickly.
KESTENBAUM: Right. And here's the second thing that explains why dollar coins are piling up. Adam, I know this one is going to drive the economist in you crazy. Here. Section 102 of the bill, sub-subsection - whatever that is, you know, with the two little I's - this is what I call the Sacagawea clause.
DAVIDSON: All right, let me read it. Circulation quantity - beginning January 1, 2007 - blah, blah, blah - the secretary annually shall mint and issue such Sacagawea-design $1 coins for circulation in quantities of no less than one-third of the total $1 coins minted and issued under this subsection.
So what this tells us is independent of demand, every time Congress mints a certain number of presidential coins, they also have to mint a bunch of Sacagawea coins.
KESTENBAUM: Yes, that's right. Actually, the number's been modified since then. Right now, it is one Sacagawea coin for every four presidential dollar coins.
DAVIDSON: So if they're minting 4 million Abe Lincoln coins, then they also got to fire up the Sacagawea mint and mint a million Sacagaweas?
KESTENBAUM: Right. Even though, as the Fed says, there's apparently very little or no demand for more Sacagawea coins.
DAVIDSON: Wow. And that means there's more Sacagawea coins than any of the presidential coins.
KESTENBAUM: Because as you go down the list - right? - James Polk - you do your James Polk, then you do your Sacagaweas. Do your Zachary Taylor, you do your Sacagaweas, yeah.
DAVIDSON: All right, so this just seems like a classic example of Congress imposing something, maybe for good reasons, maybe for bad reasons - something that just, when it meets the actual world of supply and demand, makes absolutely no sense, right? So what was their initial dream or hope or plan? Why did Congress pass this law?
KESTENBAUM: Well, we dug up tape of exactly what Congress was thinking.
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CAROLYN MALONEY: I rise in support of a bill that Mr. Castle and I have offered that is a win-win for taxpayers and the economy.
KESTENBAUM: This is Congresswoman Carolyn Maloney, Democrat from New York, speaking on the House floor in 2005.
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MALONEY: This bill earns money for the government, benefits small businesses and consumers, educates all users of American currency about their presidents and first ladies and encourages wider use of the Sacagawea dollar coin. I would call that a bill that deserves our full support.
DAVIDSON: Wow. So that's what she said in 2005. Obviously, the plan hasn't turned out that way. Now, you had said you're trying to reach her. It sounded like you were being passed around.
KESTENBAUM: Yeah, we tried for a while. She did not want to talk. But Adam, what she's saying there about the program making money - that actually is true. The coins that do make it into circulation make the government money. Remember, it costs 30 cents to make one of the coins, but when someone in the public buys one, they buy it for more than that. They buy it for a dollar. So it costs 30 cents to make. You sell it for a dollar. That's 70 cents profit for the government for each coin that does make it into circulation.
DAVIDSON: Wait. But you told me nobody wants these things, that there's no demand for them.
KESTENBAUM: Well, not nobody - I mean, 60 percent of the coins make it out in the world. But 40 percent of the coins end up in the vault, which is a huge amount of waste - as we said, $300 million so far.
DAVIDSON: And when people talk about government inefficiency, I feel like this is a classic example. Like, in the private sector, like, I'm thinking of New Coke. Remember when Coca-Cola issued New Coke and nobody wanted it? So Coca-Cola stopped making it. But if Congress had passed a law saying, you have to keep making New Coke, then there'd just be all these vaults filled with New Coke everywhere. So I don't understand why they can't just follow supply and demand. You're saying there is demand. There are people who want these. It's just...
KESTENBAUM: Not the Sacagaweas. But there's some demand there for the other ones, yeah.
DAVIDSON: Yeah, so just do the ones that people want. Don't do the ones people don't want.
KESTENBAUM: So Congresswoman Maloney wouldn't talk to us, but we wanted to find some lawmaker who was involved and ask how they feel about it today. So I'm going to introduce you to the two other members of Congress, who, as far as we can tell, were the other main people shaping the bill on the House side.
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MIKE CASTLE: I am pleased that the House will consider today the Presidential One Dollar Coin Act of 2005 I authored with Mrs. Maloney.
KESTENBAUM: This is Mike Castle, Republican from Delaware, back in 2005. He's no longer in office, but he talked with us. We sent him that Fed report I showed you, Adam. He read it, took it pretty seriously. And he agreed, the program really was not working very well. Here he is.
CASTLE: I think virtually everybody who was involved with this thought that in addition to the collectors, that you would have, you know, a greater interest in the circulation of these coins. But that wasn't to be. And as a result, you have this situation in which the cost to the government because of the inventories being so high has become a problem.
KESTENBAUM: In fact, he said he'd never actually seen a dollar coin from this bill that he helped put together out there in active circulation.
CASTLE: It's hard to come by them. Good luck. You could spend an entire day in New York City or another big city trying to find a dollar coin in your change, and you'd be hard-pressed to do so.
KESTENBAUM: We've called a number of members of Congress, and no one's really called us back.
CASTLE: I would hope that the people at the mint, the folks at the White House, the secretary of the Treasury and others would just take the time to look at these reports and look at what the problem is. It's ridiculous to have this kind of overinventory piled up when it's a resolvable problem. I might actually make some phone calls myself as a result of reading these reports and learning more about what this problem appears to be.
DAVIDSON: David, I swear, I feel like tears in my eyes. Like, this is - how often do you hear a congressman say - you know what? - I pushed a bill through, and I've now thought about it and read some research, and I think I was wrong, and I'm going to try and correct that mistake? That's sort of beautiful.
KESTENBAUM: He is a former congressman. But yeah, he took it pretty seriously.
DAVIDSON: OK. So you reached out to Carolyn Maloney - wouldn't comment. The other cosponsor says, boy, I was wrong; we really have to change this law. And you said there was one other person you talked to, another congressman.
KESTENBAUM: Yeah. Earl Pomeroy, Democrat from North Dakota. Here he is back in 2005.
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EARL POMEROY: I'm deeply grateful, Congressman Castle. By golly, when you get an idea, you just don't let it drop. I was hoping you'd wear out on this one, but no. No, you kept pushing, and here we are today, going to pass it and going to pass it with my vote.
KESTENBAUM: Adam, Earl Pomeroy is the guy in the House who backed that Sacagawea clause requiring that those coins still be minted. Actually, he would tell us we're pronouncing her name wrong.
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POMEROY: You see, I represent the state of North Dakota, home of Sakakawea, as we say in Hidatsa; Sacajawea, as she is known in the Shoshone language.
KESTENBAUM: So Pomeroy is also not in Congress anymore. I called him up. He was happy to talk about the bill. And he said he fought for that provision for a very good reason.
POMEROY: We see a lot of Washington. And the tremendous contribution he made to the country - that's only right. But for those of us that want a little diversity in our coinage, we don't think this is too much to ask. It was our view that, you know, she leaves the coin - guess what? She never gets back on the coin when the presidents have had their run. So we wanted to have her as part of the circulation throughout this experiment of running prior presidents.
KESTENBAUM: Does it seem now looking back like the minimum requirement for Native American Sacagawea, Sakakawea coins is a mistake?
POMEROY: Absolutely not. I mean, what we'd hoped didn't happen we hoped the dollar would take off, the dollar coin. Well, the fact is, it did - it has not been a popular coin. And so I think the foolish part of the law may be not the Sakakawea part, but the fact that with no one picking up these coins, we got to keep printing them because we've got to get through the rest of the president's list. Now, that to me doesn't seem to make any sense at all. Is the nation, you know, waiting with bated breath for us to get to the Calvin Coolidge coin? No. Maybe we should call it - call a halt to this whole thing.
KESTENBAUM: All right, I think people are going to be surprised to hear you defending the Sacagawea - the Sakakawea quota given how things turned out - I mean, not that it wasn't a bad - not that it wasn't a good idea at the time.
POMEROY: No, listen. Look; we - I think they're given Sakakawea a bum rap here. The issue is, we get all these coins stacking up. Would they be - would they even be printing more Sakakawea coins if they didn't have the dictate to go ahead and print presidential coins?
KESTENBAUM: Well, they wouldn't. That's exactly the point, that there might be additional demand for presidential coins, but there isn't demand for additional Sakakawea coins, and yet the legislation requires that they mint those along with every president, OK?
POMEROY: No, I hear you. But my point is, OK, if this is about broad acceptance of a dollar coin, which was what we were negotiating at the time we put this in...
KESTENBAUM: Yeah, that's clearly failed. That has clearly failed.
POMEROY: That has clearly failed. That it's precisely.
KESTENBAUM: Right. So and since that hasn't turned out, the way - particular way in which the bill is failing - fine. But your point is, the bill is failing overall. And yes, it's resulting in - that clause is resulting in too many Sakakawea coins, but the whole thing is a failure.
POMEROY: Right. That's exactly right. It's precisely correct. Now, so...
KESTENBAUM: You've been in Congress a long time. That was very well done. I wasn't sure how you were going to get out of that, but you did.
POMEROY: (Laughter) Well, you know, I was ushered to the door last election, so I'm a recent - I'm a newly minted former member of Congress. Let me put it that way.
KESTENBAUM: Newly minted.
POMEROY: (Laughter) Yeah, I know. And my face will never accumulate in any vault. I'll tell you that. I'm going to circle around, try and take one more run at this law. The law requires a continued printing of coins - more presidential coins to be printed than there is a collector's market for presidential coins. So with or without Sakakawea, they're going to have these dollar coins stacking up in the vault. It's not Sakakawea's...
KESTENBAUM: That's right. But because of your clause, there are, in addition to that, Sakakawea coins piling up.
POMEROY: (Laughter) Well, we didn't want to be slighted in our space in the vault.
DAVIDSON: Wow. You're really good with ex-congressmen. You really bring out the human being in them.
KESTENBAUM: They're a lot easier when their ex-congressmen.
DAVIDSON: Yeah. I guess so. All right, so to sum up of the three major promoters of this bill, one refuses to talk about it; another thinks it should be fixed; and the third thinks, maybe we should just kill the whole thing.
KESTENBAUM: And we called a bunch of members of Congress - Democrat, Republican. I mean, this thing was a bipartisan bill. It passed easily. And no one called this back. And, you know, if this program had taken off, if these coins had gotten really popular, you wouldn't have this surplus at the vaults. But that hasn't happened, and you do have all these extra coins. And my sense from talking to people about this is that there's a pretty easy way to fix the problem. You eliminate the Sacagawea clause, and you let collectors who really, really want the presidential coins order them directly from the mint. Right now, the Fed has to dispense them through banks, and that's just not a very efficient process.
GOLDSTEIN: So David, cut to today, to December 13, and this core change that you mentioned here in the podcast - allow collectors to order these coins, but do not require the Fed to dispense millions of them through the bank - this is exactly the change that the government's going to make now.
KESTENBAUM: And the White House estimates that making this change is going to save about $50 million a year. But we are still stuck with the huge pile of something like 1.4 billion coins that are sitting in vaults unused. And the Treasury Department estimates it can take about a decade for the economy to absorb them.
(SOUNDBITE OF SONG, "I NEED A DOLLAR")
BLACC: Is there someone with a dollar I could borrow who can help me take away my sorrow? Maybe it's inside the bottle. Maybe it's inside the bottle. I had some good old buddy...
GOLDSTEIN: As always, we would like to hear from you. Please email us at firstname.lastname@example.org.
KESTENBAUM: You can also find us on Facebook and Twitter. I'm David Kestenbaum.
GOLDSTEIN: And I'm Jacob Goldstein.
KESTENBAUM: Thanks for listening.
(SOUNDBITE OF SONG, "I NEED A DOLLAR")
BLACC: (Singing) Then my good old buddy whiskey keep me warmer than sunshine. Hey, hey. Well, I need a dollar, dollar. A dollar is what I need. Hey, hey. Said I need a dollar, dollar. A dollar is what I need. Hey, hey. Well, I need a dollar, dollar. A dollar is what I need.
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