I Sure Hope I'm Wrong

Well, the House just passed the mother of all pork bill the bailout, and by his own statements Bush will sign it. What's just incredible is that we've had two weeks of 'debate' on this, and there's really no discussion of what securities Paulson is going to buy, from whom, and how they are going to be priced. With $700b on the table, the opportunities for cronyism and payoffs are rife; let's just hope there's some rationality and transparency involved. And hopefully someone is writing up a FOIA request for trades to be submitted as soon as the bill is signed.

There's reason to believe that this form of bailout will not help the commercial credit markets that matter the most. Cash is already flowing away from the private money market deposits that fund short term commercial credit, and further extending FDIC insurance (though a good idea if at the right time) and potentially dumping up to $700b of Fed securities into the short end of the market may well exacerbate things. And it's not like there was shortage of good ideas that didn't involve leaving the foxes in charge of the hen house.

Perhaps this is a West Coast thing; I see Michael Malone shares my contempt for the proceedings in DC. (Update: Not just the West Coast.) Unfortunately, California was not only perhaps the single biggest example of the housing fiasco, the state hasn't even put its affairs in order from the last bubble. Today the Governator has had to go hat in hand to the Feds asking for help in rolling over $7b in short term state debt. It's actually a sign of returning sanity in the markets that he has to do this. California not only spent the tax windfalls of the dotcom bubble, but thanks to its Democrat government it built the assumption of that revenue into its base budget. In spite of the tough guy image, Ahnuld has not had the stones to force cutbacks, but has connived in various accounting tricks to keep kicking the structural deficit can down the road.

The largest chunk of the state's revenue is derived from an income tax that hits mostly the top 10% of earners. This bracket derives much of its income from capital gains from securities and (secondarily) the housing market - neither of which is going to show up this year. Having the credit crunch flush out this kind of folly at the state and local government level would be a good side effect, and there's no reason the nation's taxpayers should be called upon to save them. It's time for the tax eaters to feel the bite along with the taxpayers.