For the first time in the last few years, the house has made a sensible fiscal decision.
I've been wanting to write a longer post on this, but here's the quick version: Ben Bernanke, chairman of the Federal Reserve Board, sees housing crises under his bed. He and Paulson, the treasury secretary, engineer a takeover of FNMA and FHLMC that triggers a bunch of hedge contracts and causes a minor liquidity crisis and a major financial panic. They then use that panic to try to stampede Congress into approving a huge $700 Billion bank "bailout".
This is a perfect recipe for years of double digit inflation, loss of confidence in the dollar, and possibly the first depression since the 1930s.
Fortunately the House has voted against the bill. Hopefully they can hold the line in any revote that's scheduled.
The best alternate proposal is: do nothing. We got into this problem because Bernanke and Paulson did too much already; the more they do, the more damaging it will be in the long run. The long run is not that long, either: it's a year or so.
It's okay if investment banks go under. Most people do not keep their checking accounts with investment banks. The people who get hurt are the people investing enough money that they should know enough to judge their risks, and when they lose their bets, they should lose their bets.
If local retail banks start looking like they'll be at risk, allowing the FDIC to borrow from the treasury or the fed may be okay. Banks not insured by the FDIC should not get this coverage, and even the ones that are covered should not actually get the coverage unless they actually go bankrupt.
Liquidity problems, if they occur, can already be covered at the Fed's discount window.
Oh, if you're looking fruitlessly for the roll call, you'll get a kick out of this: the vote was on an amendment on H.R. 3997, "To amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes". I guess that's $700 Billion of "other purposes" there.
I'm disappointed to see that the Somerville rep, Capuano, voted in favor. The roll call is here:
Note that this bill eventually passed a few days later, I think in roll call 681.
Edited at 2009-07-19 11:48 pm (UTC)