Let the Line-Drawing Begin

OK, so the fix is apparently in on the bailout bill, and it is, as Jon Stewart noted last night, surely worth pausing at this moment in history to note that there are apparently members of the U.S. Congress who can’t be talked into spending $700 billion we haven’t got unless they also get to lower tax revenues by $150 billion.  But before we can even digest the bailout, or even last night’s debate between the Vice-Presidential candidates, we now have news that California needs federal financial assistance as well — a $7 billion loan.  CNBC reports that banks are unwilling to lend to the state.

Now, it may be unfair to compare this to $700 billion for Wall Street because, as I’m sometimes reminded here, credit is the lifeblood of our economy.  But there is still the auto subsidy precedent; if the auto industry can ask for $25 billion all on its own, it would be downright disrespectful to tell the entire state of California that we can’t spare $7 billion.  Still, I have some questions about this, which perhaps my pro-bailout friends can answer.  Here are just a few:

  1. What does this do to the theory that our problem is caused by “greed and corruption” on Wall Street, as opposed to an overtly inflationary monetary policy and a complete breakdown of fiscal discipline?
  2. In the Wall Street bailouts, we have (at least sometimes) made provision for the Treasury to take equity positions in the institutions that benefit.  Can we take an equity position in California?  Would we want to?
  3. If banks are unwilling to lend to California at any rate of interest, is there any way to spin this as some sort of terrific investment opportunity for federal taxpayers?
  4. If the federal government became a stakeholder in California’s fiscal health, would it be more likely to enforce current immigration laws?
  5. Does anyone have any hope — any at all — that our elected representatives will shake their addiction to spending money we don’t have for things we don’t need?
  6. Is there any sufficiently large business or political entity in this country to which we would deny federal financial assistance right now?

Just wondering.


5 Responses to “Let the Line-Drawing Begin”

  1. David Fitzgerald Says:

    Remember what Paulson and Bernanke called the bailout, the “break the glass” plan. I honestly believe this is the last arrow in the quiver. The point of the plan was to avoid the need to make loans like the one California is contemplating. Paulson realized two weeks ago that the increased liquidity that the Fed was providing wasn’t enough and he realized he needed to clean up balance sheets to stimulate capital infusion. California is not in the fix it is in because it is a bad credit, it is in the fix it is in because the usual sources of its cash flow have no money to make available themselves. If the bailout doesn’t solve that problem, and it is not assured that it will, I honestly believe all bets are really off and we’re looking at 1932.

    As I said earlier, the lard added onto the bailout, the loans to the auto industry and even a loan to California are, for now, all side shows and jokes besides. Unless we fix the political problem you identify in the next Congress, the financial problem will remain. The bailout is the heart-lung machine, unless a donor emerges soon, the patient will die. Am I confident, no I am not.

  2. Timothy Peach Says:

    I am considering running the New York Marathon early next month with a T-shirt that says “Wall Street Fat Cat” on the back and “I Heart Bailouts” on the front.

    Then I’m going to tape $20 bills all over my body and hit any children and old folks that I see along the way with a billy club.


  3. Mark Grannis Says:

    Go for it, Tim. The $20 bills will soon be worthless anyway. I think you need help with the slogans, though. Here are some ideas:

    “What used to be in your wallet?”

    “We make our money the old-fashioned way. We pressure you to give it to us.”

    “We measure success one bailout at a time.”

    Or, if you want to put your current employer’s logo on the front, the back could say, “Live Richly. Or watch me do it.”

  4. Timothy Peach Says:

    I loved the front page of this morning’s New York Times.

    Great big picture of Bush and Paulson smiling and shaking hands outside the U.S. Treasury!

    The only thing missing from the picture was a guy with a “Wall Street” T-shirt getting out of his Porsche to smash a homeless guy over the head with a “Foreclosure” sign.

    Go Media Bias Go!

    I like your last one the best! Except if we lose the Wachovia deal, living richly is going to be a real challenge.

  5. william resk Says:

    -100 billion for the War in Iraq
    -85 billion for AIG
    -How much did Freddie Mac and Frannie Mae cost
    -700 billion to bail out Banks and Brokerage Houses for
    greed and ignorance
    -AND NOW the sovereign state of California is asking for 7
    billion in chump change

    -Whose next? The Feds printing presses should really be
    working overtime

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