The financial goings-on in New England lately should be enough to drive any self-respecting economist to drink.

On the one hand, for years people blithely -- make that foolishly -- left billions of dollars in Rhode Island credit unions that had no federal deposit insurance. On the other hand, people whose accounts were fully covered by the Federal Deposit Insurance Corp. -- and thus were perfectly safe -- stood in line for hours in Maine, Massachusetts and Connecticut to take their money out of the Bank of New England.

If this sounds crazy, it's because it is crazy. In a rational world, people don't leave savings in ultra-risky places while yanking them out of perfectly safe places. And FDIC-insured deposits are perfectly safe. The FDIC is backed by the U.S. Treasury, which can print as many dollars as the FDIC needs.

What do we learn from the lunacy in New England? That the world, as always, is mad. That people often act like people -- irrationally -- rather than doing what logic suggests that they'll do.

And that we have to take this into account when we try to figure out how on earth to keep the U.S. financial system from collapsing.

Irrationality, though, is nothing new for the banking system. Consider the FDIC and the Bank of New England.

FDIC Chairman L. William Seidman estimates that it will cost the deposit insurance fund $2.3 billion to bail out Bank of New England's depositors. Seidman also says that the FDIC will cover the bank's $3 billion of uninsured deposits. In a rational world, Seidman would take as much of the $2.3 billion loss as possible out of the hide of the uninsured depositors by not covering their deposits. But that's not what's happening.

In fairness to Seidman, he said in testimony last week that saving the uninsured depositors will cost only $200 million to $300 million. It's not clear why this would be the case. I couldn't reach Seidman, and an FDIC spokesman didn't know. My guess is that some of the uninsureds got the bank to give them collateral to secure the deposits. But even if the $200 million figure is right, $200 million is still real money.

The FDIC says that covering uninsured depositors was cheaper than not covering them. The rationale: Letting uninsureds go down with the ship would have so destabilized the financial system that it was cheaper to save them. "It's a judgment call," an FDIC spokesman said.

On the other hand, the FDIC saved a few bucks -- $8 million to $10 million, according to Seidman -- by not covering uninsured depositors at Harlem's Freedom National Bank when the bank was closed last year.

Closing the bank was rational -- Freedom's stockholder reports make it clear that the bank richly deserved to be closed and that Freedom's directors had known for months that its days were numbered. But it was irrational not to let uninsured depositors get their money out. The FDIC could have kept Freedom open under FDIC auspices for a few days to let the uninsureds bail out, or it could have forced Freedom to notify the uninsureds that closure was imminent.

If you assume, as I do, that the FDIC was being regulatory, not racist, this isn't a question of white and black. It's a question of trying to impose so-called "market discipline." The theory behind market discipline is that failing banks pay unusually high rates to attract money, and you have to burn a few uninsureds to teach everyone not to risk their dough by making high-yielding, risky deposits in desperate institutions.

The assumption is that depositors will know enough not to keep uninsured money in a dying institution. Right. Bank of New England's financial woes had been well-publicized for a long time, but there were still hundreds of millions of uninsured deposits in it. Almost every bank that the FDIC liquidates seems to have uninsured deposits in it.

If you want to impose market discipline, the place to start is with some of the nation's largest bank companies that are losing money. Regulators let these guys keep paying hefty dividends. Citicorp, Chase Manhattan Corp. and Chemical Banking Corp. have all cut their dividends to conserve capital, but they are still paying out hundreds of millions of dollars a year. Other money-losing bank companies, like Manufacturers Hanover, still haven't cut their dividends.

It's a good bet that depositors at some of the banks owned by these companies will ultimately need an FDIC bailout and that the FDIC will need a taxpayer bailout. Which means that we will end up paying for some of these dividends.

Bank regulators can't stop holding companies from paying dividends because they don't regulate holding companies. But they can stop money-losing banks from paying dividends to their holding companies. The holding companies use that money to pay dividends to shareholders.

The FDIC's answer to this, too, is that it uses its best judgment. In some cases, it forces banks to eliminate dividends, but in other cases it believes that cutting dividends would cause so much disruption that it's cheaper in the long run to allow the dividends to be paid.

There are no magic solutions to the banking problem. We can't make people more rational. But we can make the regulatory system a touch more rational by stopping money-losing banks from paying dividends, and by forcing banks that are being disciplined by regulators to tell uninsured depositors about it. But those things are so simple and so rational that they will probably never happen.

Allan Sloan is a columnist for Newsday in New York.