Jackson Jambalaya

Barney Frank continues to cement his hold on the title of "Most Dangerous Congressman to the Economy" as he sponsors a bill to have the Feds guarantee all municipal bonds:
"Investors are concerned about ability of state and local governments to pay off their municipal bonds, and lately, some governments have even been experiencing trouble raising money through bonds.
Congressional Democrats will soon push measures for the federal government to reinsure, help purchase and regulate municipal bonds, according to Congressional staff and industry sources...
This latest intervention would:
Create a liquidity facility through the Federal Reserve to purchase municipal bonds, much like what the Federal Reserve does with mortgage-backed and federal government bonds.
Form a temporary federal government program to reinsure municipal bond insurers. Almost all municipalities buy bond insurance because it boosts their credit ratings. The cost of the insurance is usually lower than the higher interest payments that come with a lower credit rating. If the insurer runs into financial trouble, then the credit ratings on the municipal bonds drop because there is doubt about the insurance. Government backing would eliminate that concern. ...." Another Frank disaster

We've bailed out everyone else, now we should take over the entire municipal bond market. Just print up alot more money, its our printing presses after all. This is a bad idea for several reasons.

1. This will make all local governments that use bonds completely dependant on the federal government. Does a local government want to save millions because of the better credit rating? It will dance to the feds tune. Obama's recent tactic to force California to reverse pay cuts for its employees while it goes broke in exchange for stimulus money is a sign of what will happen if this bill goes through. Expect the federal government to place enough conditions on qualifying for such insurance that all local governments will become sub-units of the federal government. Working conditions, diversity, educational policies, salaries, and other forms of micromanagement will come from Vito and Bruno in D.C.

2. The only way the federal government can do this is to print more money on top of the trillions it will create to fund Obama's bailouts, deficit spending, and healthcare plans.

3. This creates a bogus credit rating. The feds are going to give all bonds the same level of insurance, which won't be priced for risk as the private insurers do. This will cost us even more money as it has in other areas when premiums didn't reflect risk (mortgage insurance for example).

4. This will make the Fed the only buyer of Treasuries as it will destroy the treasury market.

However, the Feds are just getting cranked up. Having learned nothing and forgotten everything of the last few years, they are about to destroy the FHA program. A homebuyer now can get an $8,000 tax credit for buying a home. The government is now going to allow homebuyers to use that tax credit for the down payment with an FHA mortgage. FHA requires a 3.5% down payment. FHA borrowers that do not put any money down have foreclosure rates that are three times as high as those that do. The number of FHA borrowers defaulting without even making a first payment is skyrocketing yet the Feds seem to think the only thing to do is to encourage the insanity to continue:
"Donovan (HUD Secretary) said the government will allow first-time homebuyers to use the $8,000 tax credit approved by Congress in February as a down payment on mortgages guaranteed by the Federal Housing Administration. To qualify for the credit, purchases must be completed before Dec. 1." More insanity

Its going to get worse.