The various merits and demerits of the proposal to create a fund for the acquisition of toxic securities and derivatives by the Federal government compose a huge list.  But one of the key provisions of the bill as currently proposed makes it unpalatable for any reason:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Under no circumstances ought we allow this provision to become law.  Yves Smith:

This puts the Treasury’s actions beyond the rule of law. This is a financial coup d’etat, with the only limitation the $700 billion balance sheet figure. The measure already gives the Treasury the authority not simply to buy dud mortgage paper but other assets as it deems fit. There is no accountability beyond a report (contents undefined) to Congress three months into the program and semiannually thereafter. The Treasury could via incompetence or venality grossly overpay for assets and advisory services, and fail to exclude consultants with conflicts of interest, and there would be no recourse. Given the truly appalling track record of this Administration in its outsourcing, this is not an idle worry.

But far worse is the precedent it sets. This Administration has worked hard to escape any constraints on its actions, not to pursue noble causes, but to curtail civil liberties: Guantanamo, rendition, torture, warrantless wiretaps. It has used the threat of unseen terrorists and a seemingly perpetual war on radical Muslim to justify gutting the Constitution. The Supreme Court, which has been supine on many fronts, has finally started to push back, but would it challenge a bill that sweeps aside judicial review?

I urge you to read Smith’s entire post on why this ought to be opposed.  FWIW, economists from such disparate backgrounds as Paul Krugman, Tyler Cowen, and Bryan Caplan all agree this proposal is awful in its current form (Caplan, an anarcho-capitalist, has opposed all government bailouts).

Look at all the happy people on CNBC!  Don’t they look relieved?

Yeah.  So, here’s the thing.  The US Government does not have unlimited ability to backstop the financial markets.  And it just kinda did – essentially, the US Government just guaranteed about one trillion dollars of debt (while also banning shorting, which seems to me to be a decent way of ruining hedge funds to no recognizable purpose, unless the government has decided to ruin hedge funds).

But, as we all know, the US Government already has quite a bit of debt.  And this addition to its debt burden makes it five times the total annual federal revenues, from taxes and other sundries.

What this essentially means is that the AAA credit rating of the US government is now considerably imperiled.  The stock market might go up, and banks may stop failing every week.  But if the credit rating goes, then, well, the shit will really hit the fan.  The dollar will drop like a stone against other currencies.  Worse still, the interest rate of the Federal government’s debt, which already makes up over 9% of annual government expenditures, will skyrocket.

Unscientific poll time: will the US lose its AAA rating?  If so, how long before it is downgraded?

Buried in the sound and fury of the current financial storm, including the bankruptcy of Lehman Brothers, sale of Merrill Lynch to Bank of America, and the rumored imminent meltdown of insurance giant A.I.G. is something which I consider far more dangerous:

The alert have taken note that the failure of Washington Mutual, which looks increasingly likely, would consume the FDICs reserves and, as in the savings and loan crisis, force the agency to go hat in hand to Congress for more money.

But this is comparatively early in our burgeoning banking crisis for the bulwark of commercial banks to be tested. Worse, the concern is that uninsured depositors will flee weak banks, and in process, push more over the edge.

The scale of the problem?

Washington Mutual – the sixth largest bank in the US – has lost more than a third of its market value recently as investors fear it lacks liquidity and capital to survive the credit crisis…

The FDIC is respected for its operational effectiveness. But its $45bn deposit insurance fund is underfunded according to its own guidelines, at 1.01 per cent of insured deposits…

…analysts fear it may have to draw on its $70bn Treasury credit lines. Alan Avery, a partner at Arnold and Porter, said a single failure – if big enough – “would cause the FDIC to immediately draw on the Treasury credit”.

Washington Mutual had $143bn in insured deposits on June 30 – about three times the size of the deposit insurance fund, but less than half of its $307bn assets.

Emphasis added.

I don’t have time to even begin giving this a real analysis right now, but you need to be aware of what is happening today:

In one the most extraordinary days in Wall Street’s history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.

The moves came after a weekend of frantic negotiations between federal officials and Wall Street executives over how to avert a downward spiral in the markets. Questions still remain about how the market will react and whether other firms may still falter like A.I.G., the large insurer, and Washington Mutual, both of whose stocks fell precipitously last week.

Coming just a week after the government took control of mortgage lenders Fannie Mae and Freddie Mac, the magnitude of the industry’s reshaping is staggering: two of the most powerful firms on Wall Street, Merrill Lynch and Lehman, will disappear.

This is simply staggering.  In less than one year, Bear Stearns, Merrill Lynch, and Lehman Brothers will have simply disappeared.  To put that in some perspective, all three of these banks were founded before and survived the Great Depression.  The GSE nationalization is the largest nationalization since at least the Depression, and possibly in all of American history.  Another of Wall Street’s most venerable partnerships, Arthur Andersen, one of the five largest accounting firms in America also disappeared during the last eight years.

Someone ought to be making an attack ad right now – if this is how Republicans have governed with regards to the fortunes of Americas biggest financial firms, how can anyone in any small town or city in America believe that they will be able to make a living if they continue to govern in the future?

I posted this as a comment in NPK’s essay, but it is one of my favorites, and I thought it deserves a QFD of its own.

America was never innocent. We popped our cherry on the boat over and looked back with no regrets. You can’t ascribe our fall from grace to any single event or set of circumstances. You can’t lose what you lacked at conception.

“Mass-market nostalgia gets you hopped up for a past that never existed. Hagiography sanctifies shuck-and-jive politicians and reinvents their expedient gestures as moments of great moral weight. Our continuing narrative line is blurred past truth and hindsight. Only a reckless verisimilitude can set that line straight.

~James Ellroy, American Tabloid

Emphasis added.

If there is anything I take to heart, it is this (in spite of being something of a neo-fascist, Ellroy is brilliant and capable of significant insight – and cracking good crime stories).

   What are the benefits?  Kotchen and Burger estimated that the oil had a value of $374 billion (writing in July 2007, they assumed a long-term price of $53/barrel), but that it would cost $123 billion to extract and market.  The net return of $254 billion is divided consists of industry rents of $90 billion, Alaska tax revenues of $37 billion, and Federal tax revenues of $124 billion.

Under the authors’ understanding of incidence, consumers wouldn’t benefit much at all because oil prices would not fall noticeably.  Still, drilling makes economic sense if the loss of environmental amenities is valued at less than $1,141 a person (per American, not per Alaskan) and that was with a price of oil roughly half of today’s price.

At today’s price of oil, a rough estimate of the benefit — not counting environmental costs — is over $600 billion.  So the whole issue seems much more important than I had thought just one hour ago.  Some approximation of taxes and transfers and auctions are available, so these gains can be redistributed to some extent if you wish.

That’s economics professor Tyler Cowen at his blog, Marginal Revolution.

The point that Cowen brings up is a profound one.  The common argument against expanding oil drilling both off-shore and in ANWR has been twofold: the amount of oil is not significant enough to alter the world price (which will always be true), and the value of the oil does not significantly outpace the amount of environmental damage that would be caused.

But when the price of oil changes, the value of the oil does as well.  Indeed, if the price of oil continues to rise in the long term, the value of the oil will be significantly more than the value of the environmental damage (to the extent that any value can be placed on that – but, it is easily imaginable that at future oil price X, the profits will be significant enough that huge sums from it could be used to finance environmental cleanup in many places).

Therefore, I predict that at some point, the value of the oil in ANWR will be large enough that it is politically irrational not to exploit it.  The oil in ANWR will become a sort of national trust fund, where at a certain expected value, the government is certain to exploit it.  I see no way of avoiding this, or by which this is not the rational course of action.

Watching this thing (damn, what is my major malfunction in doing that?), something occurs to me.  Huckabee’s speech was filled with things that ought to appeal to me.  Lots of mentions of freedom, and liberty, and the dangers of government.  I agree strongly with those things.  But I know Huckabee doesn’t really mean them.  He doesn’t believe that I ought to be free to eat a bacon-wrapped hot dog.  He doesn’t believe I should be free to purchase a condom at any store that wants to sell me one.  He doesn’t believe that a state-licensed pharmacist should be obligated to sell my girlfriend a state-controlled substance which will prevent her from getting pregnant.  He doesn’t believe that I should be free to purchase television from channels like HBO that feature nudity, or for that matter, smoking.  He doesn’t believe that I should be free to purchase books from Amazon without the government being appraised of what titles I buy.  He doesn’t believe that should my government accuse me of a crime, I should have a right to have a lawyer present when I am questioned.  He doesn’t believe the government ought to be prevented from forcing me to give evidence against myself.  He doesn’t believe that the government has an obligation to produce evidence against me, or to let me go.

He believes in a small government that nonetheless gets to have input into how I masturbate.

When I watched the Democratic convention, I heard a lot of things that I thought were stupid, but which I acknowledge many Democrats strongly believe.  Watching this convention, I here a lot of things that sound good.  Right up until I realize that it is all a bunch of bullshit.  Just another bright and shining lie.  

Mr. Segundus wished to know, he said, why modern magicians were unable to work the magic they wrote about.  In short, he wished to know why there was no more magic done in England.

It was the most commonplace question in the world.  It was the question which, sooner or later, every child in the kingdom asks his governess or his schoolmaster or his parent.  Yet the learned members of the York society did not at all like hearing it asked and the reason was this: they were no more able to answer it than anyone else.

The President of the York society (whose name was Dr Foxcastle) turned to John Segundus and explained that the question was a wrong one.  “It presupposes that magicians have some sort of duty to do magic — which is clearly nonsense.  You would not, I imagine, suggest that it is the duty of botanists to devise more flowers?  Or that astronomers should labour to rearrange the stars?  Magicians, Mr Segundus, study magic that was done long ago.  Why should anyone expect more?”

An elderly gentleman with faint blue eyes and faintly colored clothes (called either Hart or Hunt — Mr Segundus could never quite catch the name) faintly said that it did not matter whether anyone expected it or not.  A gentleman could not do magic.  Magic was what street sorcerers pretended to do in order to rob children of their pennies.  Magic (in the practical sense) was much fallen off.  It had low connexions.  It was the bosom companion of unshaven faces, gypsies, house-breakers; the frequenter of dingy rooms with dirty yellow curtains.  Oh no!  A gentleman could not do magic.  A gentleman might study the history of magic (nothing could be nobler), but he could not do any.

~Susanna Clarke, Jonathan Strange & Mr Norrell

I don’t quite know what to make of this, but a Google search shows already 2,680 results for “VPILF”.  A Google blog search shows 246 results in the last 24 hours.

Color me unimpressed with the millions of cracks in the glass ceiling.