The politically dangerous $700 billion financial system bailout bill is getting even more expensive as supporters load it up with pork to get wavering Congressmen to switch their vote and support it. (It passed the Senate overwhelmingly on Thursday, but was narrowly defeated in the House on Monday).
In addition, the bailout bill has been expanded to make the FDIC insure deposits up to $250,000, rather than the current $100,000. This is a bad idea, since the overstretched FDIC barely has enough resources to cover the first $100,000. The Wall Street Journal today explains just how costly and risky it is to increase the FDIC limit, and predicts that it will “encourage riskier lending behavior.”
Also in the Wall Street Journal, economics professor Russell Roberts explains how government regulators stoked the mortgage bubble, which now has imploded into a financial crisis.
The bailout bill itself may lead to inflation and future bubbles. And it may not do much to unfreeze credit markets, as the failure of European bank bailout measures shows, and as former Bush Treasury Secretary Paul O’Neill has warned.