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November 18th, 2008

More TARP Supplicants



Discussions of a possible Big Three bailout have, predictably, resulted in mission creep for the TARP. Several insurance companies want to buy a thrift institution, since that would make them eligible for a slice of the bailout pie. Insurers, at least, may have a valid claim, as today’s WSJ headline article argues.

But once the Federal honeypot was cracked open, it didn’t take long for additional supplicants to approach Congress with their hands out. Various cities, including Atlanta, Detroit, Philadelphia, Phoenix and San Jose — and they won’t be the last. But now, even entire states want a piece of the action:

Led by California with a $28 billion hole in its budget, 41 states are in financial trouble, and many of their leaders are looking to Congress to bail them out.

State officials are hoping to join the ranks of the financial industry and auto manufacturers, who’ve found a sympathetic ear on Capitol Hill. They’ve found some key supporters: House Speaker Nancy Pelosi and other top Democrats are promoting aid to states as part of a broad stimulus package that could inject more than $300 billion into the ailing economy.

California was the first out of the gate to suggest that Uncle Sam send some cash their way, but New York quickly picked up the drumbeat:

Testifying at a recent House of Representatives hearing, Paterson said that New York was “at the epicenter of a national emergency” after federal oversight bodies “utterly failed in their duty” to protect Americans’ savings and the U.S. financial system. Speaking ednesday before a Chamber of Commerce group in Fresno, Calif., Schwarzenegger said that “government is really at fault” and that Washington was obligated to “get us out of this mess.”

Schwarzenegger’s right: government is at fault. California increased spending 95% over the past 10 years. But, for some reason, he seems to feel that taxpayers in flyover country should pay for Sacramento’s spending spree. The Economist notes that “Long before local governments had revenue problems, they had spending problems.”

The governor of South Carolina, one of the few states which budgeted and spent responsibly, doesn’t need a bailout, but does wonder why less-responsible states should siphon money from the more-responsible ones — and, more importantly, where the cash will come from:

Who bails out the “bail-outor”?

Washington is short on cash these days and will borrow every dime of the $150 billion to $300 billion for the “stimulus” bill now being worked on. Federal appetites may know no bounds. But the federal government’s ability to borrow is not limitless. Already, our nation’s unfunded liabilities total $52 trillion — about $450,000 per household. There’s something very strange about issuing debt to solve a problem caused by too much debt.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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