I hope I'm not just having a bad day, but when I got an e-mail from a friend complaining that we're edging towards a "government-based housing finance market". I lost it. Here's the response I sent...

Have I missed something? Don't we already have a government (politically based) housing finance industry, banking industry, automotive industry and if you want to include AIG, a big chunk of the insurance industry? For that matter, haven't we pretty much eliminated the federalist form of government and replaced it with a sort of sovereign monarchy headquartered in Washington? We'll get into details later, but how can a true federalist system prevail when the states are deeply indebted to the federal government? That was a precept of federalism in the first place--that the states would be self-reliant and independent from the federal government.

Starting with the industries that have already been nationalized or federalized or socialized or whatever you choose to call it, the problem I see is that our feckless government invested all that (our) money in some toothless preferred stock with virtually no rights or privileges, only a wildly escalating interest rate, which our Congress thinks will motivate the "borrowers" to repay the investment quickly. None of them have ever been bankers and found out that the borrower on bankruptcy's doorstep could give a crap about the interest rate so long as they get the money to underwrite the CEO's month-end paycheck and expense account.

Just to put things in perspective, with the "stimulus" money...or TARP or whatever the heck you want to call it...what we've given GM is about 13 times the value of their common stock, Citigroup about 14X, AIG about 62X and...the award goes to...ta-da...Fannie Mae, at about 200 times their market cap. How many generations will it take for these companies to call that goofy preferred stock and repay the federal government? Never, maybe? Will they really be too worried about an egregious interest rate? Nah! Just wait a few years and call Congress--they'll reduce those high interest rates for sure. Then the feds won't have any way to get their money back and a couple of Congresses will have learned the golden rule that all bankers learn as rookie lenders--he who has the gold rules.

Haven't we also eviscerated all that "state's rights" stuff? That federalist republic concept? Almost all the states will be in hock to the U.S. Treasury for many years to come. How long will it take the states to repay that $144 billion the feds are downloading to them? Maybe a better question might be, what are the states going to use the money for? While the pontificators in Congress all talk about "shovel-ready" projects, isn't it curious that the $144 billion number comes pretty close to the combined budget deficits of the 51 states. Actually, I should say that number is the combined deficit of 46 states--5 states actually have balanced budgets for 2010. So if all the money is used to balance general fund deficits in 46 states, how do all the shovel-ready projects get funded? Just thought I'd ask. You wouldn't think that the states might have provided some sort of checklist of projects to be funded with the stimulus money, would you? I guess we'll find out soon enough on the recovery.org website whether projects were funded or whether the money just got dumped into the states' general funds.

I went one step further, wondering how long it might take the states to repay the $144 billion to the U.S. Treasury. What it boils down to is that the 2010 states budget shortfalls of close to $150 billion amounts to an average of roughly a 30-35% revenue to expense shortfall among the states. So, if the states were to "nick away" at re-paying their debts to the feds a little bit at a time, at say, 5% of their future budgets per year, it would take the states about a decade to repay their debts to the Treasury, some more, some less. And that's only if they figure out a way to either increase state revenues or decrease state spending by 30-35% to create balanced budgets for 2011 and beyond. The federal income tax rates may be getting cut, but I guarantee those cuts will be more than made up for by increases in state taxes, fees, tolls, licenses, etc. No hard feelings--it's simple arithmetic.

Now, I think I'll have a cocktail.

I agree with most of what you say and everyday seems to bring more bad news as far as the TARP or Bailout or whatever they are calling it today is concerned. I did vote for President Obama but have always been against the TARP/Bailout and think we still would have some type of Bailout Bill if John McCain were President.

It is hard to keep up with the news lately but where is the 51st State?
Puerto Rico?

I re-checked the listing of state budgetary information and Peurto Rico was included in the list. Kind of an "almost" state, I guess.