The pols have finished Christmas treeing the bailout bill. The House of Representatives passed it in an historic vote Friday.
Here at Markets and Money…we stand back…aghast…agog…paralyzed by the whole spectacle… from the lunatic assumptions of the credit bubble…to the solemn farce now taking place in the U.S. Congress.
Yes, dear reader, we are suffering from senselessness overload…the absurdities are coming too fast for us now; we can’t keep up. We fear we are going into an irony-induced coma.
Could any scriptwriter have come up with such a preposterous story? Could any director have found such a clownish cast of characters?
It was only a few months ago that all the leading men and women of this drama claimed to believe in free enterprise so fervently they were willing to spend hundreds of billions of dollars forcing it on others. It was free enterprise that separated us from the barbarians and made the country rich, they said. But now, they’re turning many of these free enterprises over to the bureaucrats to run…and desperately trying to make sure that the others don’t go broke. It’s capitalism without the creative destruction. Capitalism with seatbelts, helmets, and airbags. Capitalism without bankruptcy. It’s like taking the crucifixion out of Christianity. What’s left is as empty and foolish as a Congressman’s head.
And then, it was only a few months ago that they were telling us that there was nothing to worry about…the subprime problem was contained…property prices had hit bottom…everything was fine. Really.
Then, two weeks ago, Ben Bernanke and Hank Paulson appeared before Congress and warned that if Congress didn’t put up $700 billion of taxpayers’ money pronto, the whole world economy could meltdown. Ben Bernanke, former head of the economics department at Princeton, and now head of the world’s biggest banking cartel – the Fed – told the politicians:
“If we don’t do this, we may not have an economy on Monday.”
Of course, this alarm turned out to be as silly as his previous assurances. Monday came. The economy still functioned. And Congress got to work – Christmas treeing the bailout bill.
A colleague sends this handy inventory of a few of the gaudy balls so far, (as they appear in the actual bill):
• Sec. 101. Extension of alternative minimum tax relief for nonrefundable personal credits.
• Sec. 102. Extension of increased alternative minimum tax exemption amount.
• Sec. 201. Deduction for State and local sales taxes.
• Sec. 202. Deduction of qualified tuition and related expenses.
• Sec. 203. Deduction for certain expenses of elementary and secondary school teachers.
• Sec. 204. Additional standard deduction for real property taxes for nonitemizers.
• Sec. 205. Tax-free distributions from individual retirement plans for charitable purposes.
• Sec. 304. Extension of look-thru rule for related controlled foreign corporations.
• Sec. 305. Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements; 15-year straight-line cost recovery for certain improvements to retail space.
• Sec. 307. Basis adjustment to stock of S corporations making charitable contributions of property.
• Sec. 308. Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
• Sec. 309. Extension of economic development credit for American Samoa.
• Sec. 310. Extension of mine rescue team training credit.
• Sec. 311. Extension of election to expense advanced mine safety equipment.
• Sec. 312. Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
• Sec. 314. Indian employment credit.
• Sec. 315. Accelerated depreciation for business property on Indian reservations.
• Sec. 316. Railroad track maintenance.
• Sec. 317. Seven-year cost recovery period for motorsports racing track facility.
• Sec. 318. Expensing of environmental remediation costs.
• Sec. 319. Extension of work opportunity tax credit for Hurricane Katrina employees.
• Sec. 320. Extension of increased rehabilitation credit for structures in the Gulf Opportunity Zone.
• Sec. 321. Enhanced deduction for qualified computer contributions.
• Sec. 322. Tax incentives for investment in the District of Columbia.
• Sec. 323. Enhanced charitable deductions for contributions of food inventory.
• Sec. 324. Extension of enhanced charitable deduction for contributions of book inventory.
• Sec. 325. Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds.
• Sec. 401. Permanent authority for undercover operations. (as related to tax provisions)
• Sec. 402. Permanent authority for disclosure of information relating to terrorist activities. (as related to tax provisions)
• Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.
• Sec. 502. Provisions related to film and television productions.
• Sec. 503. Exemption from excise tax for certain wooden arrows designed for use by children.
• Sec. 504. Income averaging for amounts received in connection with the Exxon Valdez litigation.
• Sec. 505. Certain farming business machinery and equipment treated as 5-year property.
• Sec. 506. Modification of penalty on understatement of taxpayer’s liability by tax return preparer.
Subtitle B-Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008
• Sec. 601. Secure rural schools and community self-determination program.
• Sec. 602. Transfer to abandoned mine reclamation fund.
• Sec. 702. Temporary tax relief for areas damaged by 2008 Midwestern severe storms, tornados, and flooding.
• Sec. 704. Temporary tax-exempt bond financing and low-income housing tax relief for areas.
• Sec. 709. Waiver of certain mortgage revenue bond requirements following federally declared disasters.
• Sec. 710. Special depreciation allowance for qualified disaster property.
• Sec. 711. Increased expensing for qualified disaster assistance property.
Bernanke and company didn’t want to wait for the lighting ceremony and the back patting. Nowhere in the U.S. Constitution does it give the Fed the power to put each and every taxpayer on the line for about $2,000. But who cares about that? The Fed, on its own initiative, began passing out the cash. $49 billion on last Wednesday alone went to the banks. That same day, the Fed lent $146 billion to investment firms. By the time people went home for the weekend, $410 billion had passed from the Fed to private firms. The money was lent, says the Bloomberg report, at about 2.25% interest. By our calculation, that’s about half the rate of inflation…and precisely 1.4% less than the government’s cost of money, based on 10-year T-note yields.
Two weeks ago, Bernanke was asked by Barney Frank how much money he had available for this kind of rescue operation. He said he had $800 billion. Last week, he was lending it out at an average daily rate of $44 billion. Let’s see, at that rate, the Fed is probably about 5 days from going broke itself.
This should be interesting…when the Fed needs a bailout!
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