BUDGETS AND DEFICITS
Bush administration efforts to gain control over the federal budget deficit, however, were more problem- atic . One source of the difficulty was the savings and loan crisis . Savings banks — formerly tightly regulated, low-interest safe havens for ordinary people — had been deregulated, al- lowing these institutions to com- pete more aggressively by paying higher interest rates and by making riskier loans . Increases in the gov- ernment’s deposit insurance guaran- teed reduced consumer incentive to shun less-sound institutions . Fraud, mismanagement, and the choppy economy produced widespread in-
solvencies among these thrifts (the umbrella term for consumer-orient- ed institutions like savings and loan associations and savings banks) . By 1993, the total cost of selling and shuttering failed thrifts was stagger- ing, nearly $525,000-million .
In January 1990, President Bush presented his budget proposal to Congress . Democrats argued that administration budget projections were far too optimistic, and that meeting the deficit-reduction law would require tax increases and sharper cuts in defense spending . That June, after protracted negotia- tions, the president agreed to a tax increase . All the same, the combi- nation of economic recession, losses from the savings and loan indus- try rescue operation, and escalating health care costs for Medicare and Medicaid offset all the deficit-reduc- tion measures and produced a short- fall in 1991 at least as large as the previous year’s .