How a $700 billion bailout became a $800 billion "rescue plan"

by Andrea Karim on 3 October 2008 28 comments
Photo: Pigging it

You know how, when the bailout package was first proposed by Henry Paulson and Ben Bernanke, Congress and the public were generally outraged that the Fed Chairman and the Secretary of the Treasury would ask for so much money to bailout large corporations and Wall Street? Seriously, Congress was all "OMGWTF, $700 billion!?!?!? That's, like, nearly a trillion dollars! FAIL."

Joe Public probably thought that Congressional outrage was along the same lines of the outrage felt by most tax-payers. Something like "Shucks, that's a heckuva lot of money."

Turns out what Congressional leaders meant was: that wasn't nearly enough. That's why the Senate and the House both passed a bail-out bill that now includes 100 billion dollars in pork, for a grand total of $800 billion.

How on earth did Congress manage to pack so many earmarks into such a bill. Here are some of the tax benefit recipients, as listed by the San Francisco Chronicle:

  • $2 million tax benefit for makers of wooden arrows for children
  • $100 million tax break to benefit auto racetrack owners
  • $192 million in rebates on excise taxes for the Puerto Rican and Virgin Islands rum industry
  • $148 million in tax relief for U.S. wool fabric producers
  • $49 million tax benefit for fishermen and other plaintiffs who sued over the 1989 tanker Exxon Valdez spill

How ridiculous are these (with the exception of the rum benefit, of course) tax benefits?

But wait, there's more - for instance, Washington residents (as well as residents of Texas, Nevada, Florida, and Wyoming) can continue deducting their sales tax from the their federal taxes, something I've never taken advantage of because I am too lazy to save my receipts.

The bill passed the house by a vote of 263-171, meaning that 58 more Representatives voted for the bill today than on Monday, when the bill was defeated by a few dozen votes just before Congress all pretended to be Jewish so they could take Rosh Hashana off and go drink some of that subsidized rum and shoot wooden arrows at each other.

I'm not one who thinks that earmarks are all bad, not by a long shot. But I find it interesting the lawmakers who were completely obsessed with government waste and disturbed by government intervention and special interests were happy to pass along over $100 billion in pork.

Anyone else bothered? Does this seem hypocritical? Especially considering that there are no actual revisions or reforms to the laws that govern the mortgage industry to begin with?

Other fun things to consider:

  • The money being used to finance the bailout doesn't technically exist. Yet.
  • The result of creating the funds necessary to fund the bailout can crush the American dollar in a landslide of inflation.
  • Some former members of Congress would like to further deregulate industry accounting practices by repealing part of the Sarbanes-Oxley Act of 2002. You know, the part that dictated that companies "must value the assets on their balance sheets based on the latest market indicators of the price that those assets could be sold for immediately".
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Guest's picture
Emily

You know, Wednesday I sent a letter to my darling senator Sherrod Brown here in Ohio, and you should see what I got in return. The way I saw it, it was basically a "Piss off, I know better than my constituents" if I ever saw one. So much for representing the public instead of the Big Money Wall Street guys. Great to know the system works, huh?

Life's about to get interesting. Want to bail and go open a rum distillery in the Virgin Islands with me? Anyone?

Guest's picture
Guest

And here I thought bribing a Congressman/woman was illegal. I guess it's ok if it's another Congressman/woman.

Guest's picture
Guest

You know you don't have to save receipts to take the sales tax deduction, the IRS has tables you can use instead based on income (and you don't have to itemize either.)

http://www.irs.gov/newsroom/article/0,,id=152316,00.html

Guest's picture

You're dead right; It's so messed up.

Bush, Obama, Palin, Biden, McCain -- they're all in on it together. The free market is dead, even though it was governmental restrictions that caused the problem in the first place. It's really disgusting.

And the cause of the problem was basically in two parts:

a) People ignoring the logic of math in their finances. Logic works; we need to deal with it.

b) Statist restrictions. The government encouraged the problem by implying a "too big to fail" system early on, and while also passing tons of laws /encouraging/ the loosening of credit for the poor. The government tied the hands of the market down, watched it fail and then smirked -- that's not proof that the market failed. That's proof that the government failed.

That said, there's money to be made for the long haul. Stocks are cheap. Time for some value buys. ;-)

Guest's picture

This kind of thing makes me so frustrated! I just don't understand how people who are apparently intelligent can pass this kind of garbage.

Maybe we need to elect a frugal politician one of these days.

Guest's picture

Turn your anger into something positive. Join the Green Party.

Guest's picture
Kelja

I agree another party might be the answer. If one could gain the traction necessary to compete. But The Greens? You can't be serious. They've been around and haven't been able to do anything. They seem to want to control everything.

Maybe something that would work is something different: a political party interesting in having a limited, small constitutional government.

Probably an idea that's considered too out-of-date. An idea that was ahead of it's time and something too advanced for mankind.

Guest's picture

Well, good to know they have their priorities in order.

Guest's picture
Stuart

I told my senators and representatives that I will not be voting for them if they vote yes. I needed more time to review the bill before I could accept it. I encourage every person to make a follow up call/email to their representatives to let them know where your vote is going when they are up for re-election.

Guest's picture
Mikem

You betcha! Emailed all my congressmen that if there was ONE SINGLE ear mark they've lost my vote -- actually it was a form, a form into a black hole I'm sure. If you REALLY want change; change Congress first. I've only got one thing planned for Nov 4 and now I can't wait!!

Guest's picture

Wall Street reacted to the "bailout" by dropping another 157 points.

I'm not sure where this rescue plan gets us. There does not appear to be any provision to rein in the marketing of subprime loans. Sure they're not being sold now because credit is tight but if the markets loosen up again I don't see any reason why banks won't be able to sell more risky loans and offload them on the Feds. They'll call it "stimulating demand" or some other such rubbish and point to re-rising home prices as an excuse to securitize more bad debt.

Meanwhile us taxpayers are on the hook for $800+ billion we don't have.

Guest's picture
Kellye

I'm moving to Amsterdam. I think I'm going to make it the new Paris. Any other writers want to join me?

Guest's picture

Congratulations
As frugal people, you have positioned yourself to be either protected in an economic collapse, or to even take advantage.

Read "Economic Collapse Winners and Losers"

Guest's picture
Kelja

What happened was 'risk' was removed from the equation. If you went to a casino and knew that someone was going to make good your gambling losses no matter what when you left, what do you think would happen.

Every Tom, Dick and Mary would cram in there and stay as long as they could. They did.

People bought houses with no money down - then withdrew money from the house like it was an ATM.

Mortgage brokers made grand fees and commissions for selling the mortgages and loans then promptly gave them to the bank.

Banks bundled and sold off the mortgages to Wall Street. They collected their share and offloaded the risk.

Wall Street took the bundles of mortgages bundled them up with more bundles then sliced and diced them into nice packages of rated bonds. In the process Wall Street collected billions in fees and commissions.

Pension Plans, Banks, Credit Unions and everyone else bought these bonds without analyzing - super safe and producing nice returns. Now they lie there stinking like dead fish.

So, the government steps in, says the market is no longer working, and we'll buy that toxic paper for ... let's see, hmm, ... well, whatever you think you need!

What a scheme! Tell me I'm dreaming, please!

Aren't there any politicians with any basic economic sense. Very few as it turns out.

This isn't going to turn out well.

Guest's picture
Sarah

The reason why the residents of the aforementioned states can deduct their state sales tax from their federal income taxes is because in those states, sales tax takes the place of a state income tax. State income tax from the other states is deductible as well [of course, it all depends on how much you make and if you itemize, etc].

And that's not new, either. It's been that way for several years.

Guest's picture
Rick

I just heard from a relative that all the banks in her area have jumped the rate on CD's from 1.25% to 3.5%, in the last couple of days. Hyper-inflation here we come! We ARE living in interesting times.

Guest's picture
katy

what do you mean they pretended to be Jewish to take Rosh Hashanah off? That was an insensitive, at best, comment.

Andrea Karim's picture

How is that insensitive? Did I say anything against the Jewish religion? Please. Don't jump at every chance to be offended. Jon Stewart (by last count, Jewish) even mocked the idea Congressional members who are NOT Jewish to take off in the middle of a crisis to 'celebrate' a Jewish holiday.

I'd expect Congress, even devout Christian members, to work over Christmas if it meant getting to the bottom of a serious problem.

Guest's picture
Charles

Used to you might smirk if you guessed right. You,used to think if you knew the facts you could solve the problems.
But, really you start to feel old when you realize knowing doesn't really help and being right has no satisfaction.
Thanks for the Pork Barrel Market update. Back to figuring out how to get rid of debt and learn how to grow and process your own food.
Man we went through a lot of this in the 70's and 80s"
Be sure an vote what ever your preference but remember McCain and Obama made sure they both were there to vote this through the Senate to encourage the House to agree.
They both are in it together there isn't a nickels difference between the whole bunch but, we put them there.
Vote ON! while you still can.

Guest's picture
Guest

I am just so pissed right now I don't even have words.

Can I get a couple million for some rum??!

As much as I read, I still don't get any of it...like, I read it, but I can't seem to put it together in a logical sense that doesn't make me angry.

But seriously, about that rum...

Guest's picture
A Canuck

You guys are screwed. Vote for McCain/Palin, and you got somefast-talking, non-sensical woman who could literally be a heartbeat away from the Presidency? It sure is good comedy watching her and Tina Fey on YouTube.

But in all seriousness, America is in deep trouble with these bozo's running the country. Nearly a trillion dollar "bail out" plan? Come on. If the market dropped by nearly 200 points on Friday, you ain't seen nuthin' yet. Say it aint so, Joe!

I, I'm sorry to say. It will get worse from here on in. Near 7000 for the DOW by the end of the year.

A way to make money? Short the DOW. Everything will tank. When gold is not manipulated anymore, that will go up. Try to get physical gold. You just cant anymore.

Seeing all of this from my perch on my igloo in Canada. No doubt it will hit us hard up here in the Great White North.

Guest's picture
LOWRYDER

$2 million tax benefit for makers of wooden arrows for children
$100 million tax break to benefit auto racetrack owners
$192 million in rebates on excise taxes for the Puerto Rican and Virgin Islands rum industry
$148 million in tax relief for U.S. wool fabric producers
$49 million tax benefit for fishermen and other plaintiffs who sued over the 1989 tanker Exxon Valdez spill
I want my damm money back this is not right to spend my money this way why. Why would i let any one spend my money and on this crapp its time to vote in new blood. these people are going to drive us in the ground if let go. NO MORE boot them out of a job a 10 year old knows more about how to spend and save this is just not right

Guest's picture
Sarah NOT Palin

The Dow will be just fine. Government is bought and paid for by Business. No sacrifice of the Middle Class is too great for our politicians to keep collecting their over and under-the-table 'campaign contributions.'

Of course this obscene legislation won't even slow a recession, but with globalisation, that's not what it was ever about. This is purely a measure to keep the powerful wealthy people wealthy and powerful. Watching the bigger players eating up the big ones, it wouldn't surprise me if the whole thing was staged.

With 19 years to go, I'm continuing putting new 401k deposits into stocks, and after the trend of freezing and discontinuing
defined pensions, there are going to be riots if the government pulls an Enron on the entire nation.

America has a short attention span, but it's only one month to election day. This may be the single most UNPOPULAR piece of legislation to ever become a law. Hold your grudge until election day, and make sure your vote counts.

Guest's picture
Cheaplee

Bailout good. I don't think that the details matter. It is all an illusion of support, and that is why the bailout is good.

It is a shame for pork. And there's plenty more in most every bill they pass. It is also embarrassing for us to tolerate such behavior.

Still, the bailout will mask the illusion of safety, which may buy us enough time for businesses to fix themselves.

-Lee for www.cheaplee.com

Andrea Karim's picture

Now, remember, it's not like the government has taken the money from us. The money doesn't exist. The government is going to sell securities in order to get the money.

Guest's picture
A Canuck

The DOW will NOT be fine. Don't kid yourself people. Serious. All hell will break loose in the markets.

Guest's picture
andys2i

Bailout plan has become irrevelant as the global economy crumbles. As discussed recently, Economic Indicators signal major collapse ahead which the Fed and US government will be unable to stop no matter how much money is thrown in.

Guest's picture
Guest

all u guys need to get a life, like seriously ive been searching the web for all this economic crap for my economics class and i still havent found anything. seriously, the most disturbing part is that i have to read all ur guy's dumb comments and all i got to say is get a life ur pissing me off.