by Reality Check » Sat Jul 07, 2012 9:38 am
Speculation on one way bailouts of California and Illinois might be engineered:
First, get the U.S. Congress to go along with a "limited bailout" to address the "emergency conditions" in California and Illinois.
This bailout, like the U.S. bank bailout in the fall of 2008, would be totally inadequate, but it would create the political atmosphere for more substantial bailouts by means that would not require a vote by Congress.
The Media would be full of stories showing what a large part of the U.S. economy California and Illinois represent, what the devastating effect on the entire U.S. economy would result if they had to "suddenly" balance their budgets, and the horror stories of disease and starvation that would result if the citizens of California and Illinois were denied Medicaid and Food Stamps ( state programs the states would no longer be able to afford). Economists would point out that it would be much cheaper for the Federal Government to provide a few Billion this year to continue existing programs and allow for a "gradual transition" to a balanced budget in California and Illinois.
Such a bailout would be similar to what is going on now in Europe where very limited bailout funds are being approved by the parliaments of all EU Zone countries. The hundreds of Billions available in these funds are totally inadequate to impact Italy and Spain's default problems, but they set the political stage for the European Central Bank to print money and provide support to Italian and Spanish banks and to the governments of Italy and Spain that far exceeds the ECB charter.
What Congressman would want to vote against an urgent call from the President of the United States and the FED to spend just a few Billion dollars and avoid the risk of a major United States recession. After all, it is just a few Billion, and if they do not spend the money and the economy tanks, it will be their fault. Besides, everyone knows it will cost the U.S. taxpayers far more in disaster relief to California and Illinois to relieve hunger and disease if the money is not spent, so they are really saving the U.S. Taxpayers money.
Now the emergency nature of the California and Illinois problems will have been established with the public and members of both political parties are committed to "fixing the emergency" as long as they do not have to vote to spend more of the taxpayer's money.
Congress would also change the bankruptcy laws to "ensure" bailout moneys "loaned" to the states would be paid back before other creditors and to give the federal government control of the bankruptcy process of any state that accepted bailout monies from the Federal Government. All in the name of protecting the U.S. taxpayers.
Then the stage would be set for banks, acting on behalf of the FED, to buy special reorganization bonds from the states, and the FED would be able to loan the banks monies against the assets created on the Banks' books by these loans. Buried deep in the new laws protecting the U.S. Taxpayer would be a provision that allowed these special reorganization bonds from the states to be given special treatment by bankruptcy laws, and to be accepted as collateral for purposes of the Federal Reserve Bank making loans to banks.
Speculation on one way bailouts of California and Illinois might be engineered:
First, get the U.S. Congress to go along with a "limited bailout" to address the "emergency conditions" in California and Illinois.
This bailout, like the U.S. bank bailout in the fall of 2008, would be totally inadequate, but it would create the political atmosphere for more substantial bailouts by means that would not require a vote by Congress.
The Media would be full of stories showing what a large part of the U.S. economy California and Illinois represent, what the devastating effect on the entire U.S. economy would result if they had to "suddenly" balance their budgets, and the horror stories of disease and starvation that would result if the citizens of California and Illinois were denied Medicaid and Food Stamps ( state programs the states would no longer be able to afford). Economists would point out that it would be much cheaper for the Federal Government to provide a few Billion this year to continue existing programs and allow for a "gradual transition" to a balanced budget in California and Illinois.
Such a bailout would be similar to what is going on now in Europe where very limited bailout funds are being approved by the parliaments of all EU Zone countries. The hundreds of Billions available in these funds are totally inadequate to impact Italy and Spain's default problems, but they set the political stage for the European Central Bank to print money and provide support to Italian and Spanish banks and to the governments of Italy and Spain that far exceeds the ECB charter.
What Congressman would want to vote against an urgent call from the President of the United States and the FED to spend just a few Billion dollars and avoid the risk of a major United States recession. After all, it is just a few Billion, and if they do not spend the money and the economy tanks, it will be their fault. Besides, everyone knows it will cost the U.S. taxpayers far more in disaster relief to California and Illinois to relieve hunger and disease if the money is not spent, so they are really saving the U.S. Taxpayers money.
Now the emergency nature of the California and Illinois problems will have been established with the public and members of both political parties are committed to "fixing the emergency" as long as they do not have to vote to spend more of the taxpayer's money.
Congress would also change the bankruptcy laws to "ensure" bailout moneys "loaned" to the states would be paid back before other creditors and to give the federal government control of the bankruptcy process of any state that accepted bailout monies from the Federal Government. All in the name of protecting the U.S. taxpayers.
Then the stage would be set for banks, acting on behalf of the FED, to buy special reorganization bonds from the states, and the FED would be able to loan the banks monies against the assets created on the Banks' books by these loans. Buried deep in the new laws protecting the U.S. Taxpayer would be a provision that allowed these special reorganization bonds from the states to be given special treatment by bankruptcy laws, and to be accepted as collateral for purposes of the Federal Reserve Bank making loans to banks.