All the political talk is of the so-called "fiscal cliff" -- the combination of pending tax increases and spending cuts scheduled to take place on the first of the new year absent action by Congress.
But does Congress have any real ability actually to take on spending cuts? Even as they are supposedly discussing that subject, everyone who is suffering any bit of downside in life is asking for a bailout from Washington, and the punditocracy reacts to those requests as if of course they will be fulfilled, no matter the cost. Let's look at a partial current list.
The bailout of Fannie and Freddie cost the Federal taxpayers some $188 billion just a few years ago, according to the Wall Street Journal here. Supposedly those black holes are winding down over the next several years. So did the government learn its lesson and get out of the business of guaranteeing essentially every mortgage issued? Of course not. They just transferred that function over to another agency, the FHA. How's that going? Well, needless to say, they "need" a bailout. According to the Washington Post on November 18, when Fannie and Freddie started shrinking:
The FHA’s portfolio swelled to more than $1 trillion. Critics charged that the FHA lacked the capital and managerial capacity to handle this massive expansion and that the resulting losses would end up costing taxpayers billions — accusations that the agency repeatedly dismissed as exaggerated. Right now the critics are starting to look pretty prescient.
Already the FHA has had losses, leaving it with some $16 billion of negative net worth, according to the Post. But that's just the start:
Indeed, the FHA’s predicament is worse than the $16.3 billion figure suggests. If interest rates remain low, more high-quality loans will be refinanced out of the FHA’s portfolio, leaving the agency with the dregs.
This could easily turn into a one hundred billion dollar problem, or maybe two. Does Congress have any ability to say no? According to the Post, "an FHA bailout may be inevitable." You probably thought that Congress had a say in the appropriation of money, but in the new world, bailouts are just "inevitable."
Now that outstanding student loan debt has gotten to the magic threshold of $1 trillion, it must be time for a bailout there too. Representative Hansen Clarke, Democrat of Michigan, has introduced the Student Loan Forgiveness Act to wipe most of that clean. College Insurrection predicts that this bailout will consume most or all of the tax increases that President Obama is demanding in the fiscal cliff negotiations. Maybe -- but don't they know about all the other bailouts that they "must" pay for?
After the governors of New York, New Jersey and Connecticut put in demands for the Federal government to pay to make everything perfect again after the big storm, the Obama administration has now made its request for funding to Congress: $60.4 billion. Oh, that's also about the same amount as the projected first year revenue from the Obama tax increases. It's also pretty much the same amount as the figures so far demanded by the governors of the three affected states -- amounts which I have previously shown are wildly excessive. But don't worry, the Senators from New York and New Jersey immediately came forward to say that this is just a start and we're going to want a lot more.
In a joint statement, Sens. Charles E. Schumer (D-N.Y.), Kirsten Gillibrand (D-N.Y.), Robert Menendez (D-N.J.) and Frank R. Lautenberg (D-N.J.) said the request “doesn’t cover all of New York and New Jersey’s needs” but does cover “a large percentage. We believe this will be the first of several supplementals that will be necessary as our states’ needs become more clear, and we look forward to working with the White House on those as well,” the senators said in the statement.
Meanwhile the City of Detroit is running out of money and may miss payroll some time in the next few weeks. What's the answer? Obviously, a bailout from Washington. From Red State:
[Detroit] City Councilwoman JoAnn Watson is demanding America give the city bailout bacon to erase Detroit’s $200 plus million deficit as a quid pro quo for Detroit’s overwhelming presidential election support of Obama.
OK, $200 million is chump change in this game, but it is also only the beginning. And if Detroit gets its bailout, how far behind will be Illinois, and then California? I can safely predict that within this next Obama term, all of those entities, and many more, will be in Washington demanding their bailouts.
There's nothing actually real about the deficit negotiations in Washington until someone realizes that this is just not possible.