Here’s the problem: the 700 billion dollars is to be used to buy the “toxic” (well, worthless, actually) assets of a variety of banks. These assets will be bought for prices greater than the current market price and, in principle, that will “drain the swamp” and bring back “business as usual”. However, to stretch the metaphor, no one really knows how big the swamp is. And no one really knows how many swamps there are.

Right now the focus is on unwinding the securitized sub-prime mortgages. But there is plenty of other consumer debt which has been securitized including credit card debt. How much? Well about $2.6 trillion dollars of which 37% is revolving credit ie. credit cards. (The rest are things like car loans.) How much of that will turn out to be toxic?

For a bailout to be effective it needed to address the full reality of the debt mountain consumers in the US (and Europe) have built up. And it would have had to do that in a structured, orderly, way.

Tossing money at toxic assets and raising the FDIC limits, makes it pretty clear that the great minds in Washington are at a lose as to how to do anything but crisis management. One crisis at a time.

There are a number of things which the US government could do to address the sources of the crisis. One would be to streamline the marking to market and sale of the 3 million foreclosed houses in the US. A second would be to aggressively unwind as many of the toxic assets as can be found including the non-mortgage credit assets. A third would be to significantly reduce the government’s own deficit. A fourth would be to actively participate in the creation of a value (read gold) backed world reserve currency. A fifth would be to levy taxes on credit card balances carried more than one month. A sixth would be to levy sumptuary taxes on things like TVs with greater than 40 inch screens and cars costing more than $40,000.00 and houses larger than 4000 square feet. A sixth would be a deficit reduction supercharge on incomes (from all sources) greater than 1 million dollars. A seventh would be the outlawing of earmarks. An eight would be a tax on college tuition greater than $25,000 per year.

None of these measures need be excessive and all should be a transparent as possible. The objective should be to bring personal and governmental expenditures more into line with real income.

Reality is biting.

OK, the bill failed, 228 to 205. The House has decided, oddly enough, to try a do-over. Yes, the House is taking up the same bill, again, right now, seeing if the same lawmakers vote differently this time. The Dow’s down about 500. washington monthly

Dow is off 460 points and gold is over $900.

It will be really interesting if the House defeats the bill again on the do over…

Update: For those keeping score Wikipedia informs us “The largest one-day point drop in DJIA history occurred on September 17, 2001, the first day of trading after the September 11, 2001 attacks, when the Dow fell 684.81 points”

Today…777

So we can turn our attention back to the financial markets which are having a rather rough ride.

#1 Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., was in talks to be acquired by Bank of America, a marriage apparently brokered by the federal government. (Not quite that “Bullish on America”.)

#2 New York Insurance Superintendent Eric Dinallo and a representative of the governor’s office spent the weekend at the headquarters of insurer AIG, hit hard by deterioration in the credit markets, trying to craft a solution that protects policyholders, according to Dinallo’s spokesman David Neustadt.

#3 Lehman Brothers may be forced to seek an orderly unwinding of its businesses. All potential buyers walked away after the U.S. Treasury refused to budge on its refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered.

Expectations that the 158-year-old Lehman would survive dimmed after Barclays PLC withdrew its bid to buy the investment bank. Barclays and Bank of America were considered front-runners to buy Lehman, which is foundering under the weight of $60 billion in soured real estate holdings.

(all from an AP round-up article.)

The unwinding of the broker dealer business and the investment banking business has a lot to do with amazingly optimistic bets Merrill and Lehman mad on the mortgage backed securities market in the US. But the ugliness goes beyond doubtful mortgages. The exposure of the financial community to any amount of doubtful debt bundles is, even now, virtually impossible to determine.

Plus, and this is where its gets really messy, virtually all financial institutions hold the debts of other financial institutions. They are “counterparties” in various transactions. Normally, this is a relatively risk free means to spread and share risk; but “normally” takes for granted that the counterparties do not default, do not go bankrupt. If Lehmans goes down it has a small, but real, potential to take a good sized chunk of the currently undercapitalized world banking system down with it.

Like Ike the potential for a truly catastrophic banking collapse is very real. Not entirely likely, but real enough that the stock market is likely to be very spooked tomorrow morning.

Hold on because this is a financial storm surge of potentially lethal proportions.

Update: “The Lehman board authorized the filing of the Chapter 11 petition in order to protect its assets and maximize value, the firm said. In conjunction with the filing, Lehman intends to file a variety of first-day motions that will allow it to continue to manage operations in the ordinary course.” wsj”

No more “golden crumbs” at Lehman’s.

Briefly stated, the Gell-Mann Amnesia effect works as follows. You open the newspaper to an article on some subject you know well. In Murray’s case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward-reversing cause and effect. I call these the “wet streets cause rain” stories. Paper’s full of them.

In any case, you read with exasperation or amusement the multiple errors in a story-and then turn the page to national or international affairs, and read with renewed interest as if the rest of the newspaper was somehow more accurate about far-off Palestine than it was about the story you just read. You turn the page, and forget what you know.

That is the Gell-Mann Amnesia effect. I’d point out it does not operate in other arenas of life. In ordinary life, if somebody consistently exaggerates or lies to you, you soon discount everything they say. In court, there is the legal doctrine of falsus in uno, falsus in omnibus, which means untruthful in one part, untruthful in all. climate audit

It applies well outside the dubious world of “climate science”.

Hurricane Ike will hit around the Houston Ship Channel overnight. Chances are it will be a Cat2 storm which, in a different location on a different night would be no big deal. But tonight is an unusually high tide and Ike’s storm surge is looking like 20 feet.

When Katrina hit New Orleans the human effect was devastating and the economic loss significant. But, realistically, New Orleans was hardly a center of American industry. Galveston/Houston is. And one of the main industries there are refineries.

If those refineries are hit and if the Houston Ship Channel is damaged we are looking a significant gas shortages throughout the US for weeks and perhaps months.

Update: “Texas is home to 26 refineries that account for one-fourth of U.S. refining capacity. Most are clustered along the Gulf Coast near such cities as Houston, Port Arthur and Corpus Christi. Exxon Mobil Corp.’s plant in Baytown, outside Houston, is the nation’s largest refinery.” AP And in that same article the wholesale price of gasoline has spiked to $5.00 ahead of Ike’s arrival.

Which is likely to change the politics and the economics of the US, Canada and very possibly the world.

Update II: It looks as though we - and thankfully the people in Coastal Texas - made it through Ike. “But the vital Houston Ship Channel was not hit as hard as expected by a storm surge that could have caused far greater damage and swamped refineries.

“Fortunately the worst-case scenario that was spoken about, that was projected in some areas, did not occur,” said Texas Gov. Rick Perry.” Reuters

She could become a transformative political presence.

So they are going to have to kill her, and kill her quick.

And it’s going to be brutal. It’s already getting there.
Peggy Noonan, WSJ via SDA

But why bother killing her, you can follow the leftie trope started at talkleft and picked up by our own Dr.Dawg: the Palin Dead Pool - when, not if, Palin is dropped, kicked, from the Republican ticket.

Seems The One cannot stand the competition from an intelligent woman who has better Executive credentials than he does and is, horrors, pretty much a regular working class person. (I am surprised to see the Dawg barking so fiercely at a working class woman aspiring to high office…ah, wrong party. Got it.)

Sex is where babies come from. It doesn’t matter that you “didn’t mean to get pregnant” and only wanted the fun parts. An extreme skateboarder doesn’t “mean” to break a leg in eight places, but guess what?

I’m glad she’s not getting an abortion. I’m less thrilled that she’s getting married, but she probably isn’t thrilled either. If it works out, great. It’s been known to happen. But she should have planned her life better. It really isn’t that hard to do. Call it “delayed gratification.” Just control your damn self. five feet of fury

As various lefty commentators have pointed out, now that we are past the disgusting Trig inventions, socons are not down with seventeen year olds getting knocked up. Just say no and all that. My pal Kathy is leading the unreconstructed charge.

Couple of things. First, sex without contraception leads to babies as I know to my delight. Second, telling young ladies to “keep their legs closed” tends to be less effective than the Pill, condoms or, Hell, even the rhythm method.

Young women - and 17 is not 13 - have sex. Mama Palin, apparently (and I have yet to see the quote but it would make sense) is opposed to “explicit sex education” in the schools. So am I ’cause I think explicit sex education needs to happen at home. In the Palin household apparently this did not happen.

Does this make Mrs. Palin unfit to be Vice President. Hell no. It makes her far better able to understand the realities which are faced by families all over the world. It makes her capable of at least having the chance to rethink a rule against sex education in school because, let’s face it, she did not get the job done at home.

At the same time this will illustrate an essential difference between a broad spectrum of righties and lefties.

Obama stated - and I can’t be arsed to get the link - that if one of his daughters was knocked up he would not “want her punished with a baby”. Mrs. Palin has said:

“Our beautiful daughter Bristol came to us with news that as parents we knew would make her grow up faster than we had ever planned. As Bristol faces the responsibilities of adulthood, she knows she has our unconditional love and support,” the Palins said. ann althouse

And for the lefties who are shocked or who want to cry hypocrisy one of Ann’s commentors notes:

Remember, your wonder boy Barack was born to a teen age mother who was impregnated out of wedlock by the 24 year old married black African Muslim father when she was only 17 (actually 18 ed’s note) years old. althouse

Kathy, Bristol apparently did not keep her legs closed…which means that Mrs. Palin and her family will be welcoming a grandchild about the time she takes the oath of office. It would be nice if it had worked out differently; but it didn’t. A new little person will be born. And we will all be better off for it.

Sully, churlishly, concedes defeat with this bit of bitchery, “This seems to put the kibbosh on this, although it would still be good to have official confirmation from the McCain campaign, which should be easy enough to do.”

A simple, “I am really, really sorry to have forgotten what deranged idiots post at Kos and I am ashamed of calling into question your integrity, the parentage of Trig, and the McCain campaign on the basis of utterly unverified speculation just because there is a little piece of Obama’s dangly bits I have not licked quite hard enough yet and I really hate George Bush and I have friends who are Kennedys and they invite me to servants’ day at Hyannisport every two years.” might go some way to repairing to poor man’s reputation.

Or not.

Who cares? He’s in the tank and staying there.

“You need to be scared,” Nagin said of the Category 4 hurricane tearing along Cuba’s western coast. “You need to be concerned, and you need to get your butts moving out of New Orleans right now. This is the storm of the century.” cnn

Now I hate to say this, and my brother tells me he is spending Christmas in New Orleans, but has anyone thought that, perhaps, The Big Easy would make a better theme park than actual city what with the broken levees and hurricanes and all?

Of course, realistically, there are people living on the slopes of Vesuvius.