Which Can You Trust: Congress Or Markets?

Congress' trust levels have flirted with single digit percentages for the last couple of years. Its current proceedings confirm that's where they belong.

Now that the first version of the financial bailout bill has failed in a display of partisan incompetence, some have been taking time to actually read what was almost passed. Far from a 'clear bill' to reassure the nation and markets in a time of crisis, it was larded with the type of earmarks that has become a hallmark of our degraded national legislature. Including at least the following:

• Film and Television Productions (Sec. 502)
• Wooden Arrows designed for use by children (Sec. 503)
• 6 page package of earmarks for litigants in the 1989 Exxon Valdez incident, Alaska (Sec. 504)
• Virgin Island and Puerto Rican Rum (Section 308)
• American Samoa (Sec. 309)
• Mine Rescue Teams (Sec. 310)
• Mine Safety Equipment (Sec. 311)
• Domestic Production Activities in Puerto Rico (Sec. 312)
• Indian Tribes (Sec. 314, 315)
• Railroads (Sec. 316)
• Auto Racing Tracks (317)
• District of Columbia (Sec. 322)
• Wool Research (Sec. 325)

Credit to commenter 'gabriel' at Winds of Change. As you can see, these are all clearly related to the financial crisis. </snark> Any questions about how Secretary Paulson's three page request grew to over a hundred pages? Curious as to what might be going on here, another Winds commenter tracked down the Wool Research item, finding a crony capitalism program that allows the government to dole out import tariff relief to politically selected corporate beneficiaries.

Who wrote these programs into the bill? Not known as yet, but it originated in the Democrat-controlled House of Representatives. And by the way, while they were stuffing the bill with pork seriously debating the financial crisis, they also had to pass a continuing resolution to fund the government, since there wasn't time to run a real budget through a public debate. Perhaps leading them to believe no one would notice the 2,760 earmarks totaling $19.1 billion inserted into the bill with no public debate or vote.

Not disgusted yet? Then maybe you can take eight minutes to watch this youtube of our Congress at work. Back when the Fannie and Freddie debacle might have been manageable. And yes, it's those same fine folks that you'll see telling how wonderful and reliable Fred and Fan are that are in charge of fixing things, at least if they manage to pass a 'bailout'.

The deeper you dig, the worse it looks. The US legislature cannot restore trust to the markets, because it has and deserves no trust itself. It already proved the point by almost passing a 'bailout' larded with special favors and political payoffs. The spectacle in Washington now is about log-rolling so that another bill, even longer and with more hidden payoffs, can get through the House.

There are some good ideas out there. Take care of those who took the word of bankers and brokers and put their moneys into savings and money funds. They were lied to, and deserve recompense. (No, it won't be free, and yes it will draw money away from other investments.) Temporarily suspend mark to market rules for illiquid positions. (Yes, there's moral hazard there as well, that's why temporary.)

But no bailout for those who took loans knowing they couldn't repay, and for those wrote them knowing they were fraudulent. Liquidate Fannie and Freddie, and bring on the FBI and forensic accountants to follow the money trails.

Open up the Fed window for sound banks, but let the negligent ones go to the wall. Those hyperventilating about a sky-high LIBOR miss the point. It's high because no one knows who can be trusted, which institutions are sound. How is letting a corrupt Congress adjudicate that question politically going to resolve the issue? Stock prices are showing that the market can tell the difference, let it do its work. Try to fool the markets with political flim-flam again, and the eventual butcher's bill will be even worse.

If there were any decency in Congress, there would be resignations from chairmanships or office over this, but there won't be. There is no shame. The best we can hope for is that the hole isn't being dug deeper. The longer the bill reported, the less time for debate and public examination, you can bet the more payoffs and favors will be in it.

No bailout bill.

Update: It's just as bad as I feared. The Senate version of the bailout is now over 450 pages. They are busy tacking on all sort of little jingly bits to buy support. A $3.8 billion unfunded mental health insurance mandate; since clearly those responsible for this mess need their heads examined. I support AMT reform (nay, repeal!) but this is not the place to do it. Ditto R&D tax credits. A piece of pork for everyone, wonder who's to pay. Check the mirror when you're shaving / putting on makeup in the morning.

Update 2: more on the pork from Bloomberg.

Comments

[Nortius Maximus]

Apologies for the jump to here, but the post this excerpt of yours is from didn't seem to have a comments option. You write

"One other angle to consider: Since extensions of credit are de facto expansions of the money supply, we.... could [get] a notable deflationary monetary effect."

I was thinking the same thing. And I wonder if the plummeting spot price of oil might in some way parallel or contribute to that, too. Hard cash on the barrelhead so to speak. As commercial paper stays gunked up, we also might be seeing a Gutman Moment: "Yhessss, but thiss is REAL COIN OF THE REALM. With one of theeesse you can buy TEN of TALK."

Credit drying up in spots might make cash payments more valuable there, right?

Here's another piece: as disposable income spending tightens up, with the other deflation happening, could that demand reduction also mean big cuts on prices for consumer electronics or even new cars?

Figuratively: people hawking ASUS EEEs at newsstands or college kiosks, just down the block from "Apple Annie"?

4 Gig DDR2 memory for $5?

Or am I just confused?

[Nortius Maximus]

I've made this topic a top post over at Winds of Change. Thanks for the motivation / inspiration.