type economic growth for probably the better part of the next decade.

That is…if we’re lucky.

This bailout will probably be the first of many yet to come, each one being touted as the only option because we are facing economic Armageddon.

By loading the bill with so many punitive measures on the financial institutions that elect to participate in the “reverse auction”, the incentive for most firms with the junk on their books is to keep it and wait for their more desperate competitors to unload theirs to the Treasury first. That way, they can have some hope of not taking realized losses (by selling) instead of paper losses.

For the firms that can ride it out, they won’t have signed their soul – and the future of their company – over to the Feds.

Besides that, once the Credit Default Swap markets start tumbling – likely in the next 12-24 months – we’re all finished financially. It’s a subject not many people pay attention to, nor understand, but it has the potential to send companies around the world falling like dominos. Governments will attempt to intervene, but that too will only cause a different set of winners and losers, but the same results in the end.

Get ready folks. Sharpen your rhetoric against the Democrats, because if they get control of our entire government after this election, none of our lives will ever be the same.

I respect your factchecking on this bill, however the overarching issue is not in the specifics, but whether this unprecedented degree of state intervention will actually help do anything other than forestall the inevitable.

At the end of the day, this is essentially Paulson created a government hedge fund that arbitrages the risk of holding a large, diversified portfolio of mortgage backed securities and other debt instruments against the risk-free rate of the U.S. Treasury issuing anywhere from $250 billion to potentially over a trillion dollars worth of Treasury bonds.

Maybe that can turn a profit in the end. Or maybe, if the economy doesn’t perform as well as we hope, the credit markets seize up – or dry up = because of banks aversion to risk in the domestic economy.

One thing is for certain. The credit rating of the U.S. Treasury will now, for the first time in generations, start to be looked with a lot more skepticism by the rest of the world. Interest rates are almost certain to rise when the Treasury has to finance this debacle. The resulting hit on the dollar will be felt by us all.

Third quarter corporate earnings season for 80% of the S&P 500 starts the second week of October.

Currently, non-financial sector stocks have P/E multiples that are baking in pretty optimistic numbers for the 4th quarter and going forward.

The back-to-school season was a dud. The government welfare, er stimulus checks that went out in May did not have any meaningful impact (imagine that…).

If the House GOP stands together and votes against the bill when we all know the Democrats are going to have to get this thing passed and are only looking for enough GOP votes to allow more of their imperiled members to vote against it, then at least Republican House candidates have an issue.

The bill is going to pass either way. The Democrats know they have to get it through and they are going to need Democrat votes to do it. They only want the House GOP onboard to take away the political risks if it doesn’t work.

Now, if the market tanks in October – maybe even for completely other reasons – the Democrats will be seen as passing an ineffective bailout of Wall Street and putting taxpayers on the hook.

Then the House GOP can say the Democrats should have listened to us more and followed the Republican’s ideas.

Backed Securities.

Yes, a high percentage are being paid back. Unfortunately, there are at least two other reasons that make these instruments nowhere near the value that they were once assumed to have.

One is that the principal component of the properties is declining drastically in price. That is the market value of the underlying home/property. No one knows where the bottom is on that, and because these streams of payments on the mortgage were based on a much higher price when the loan was given, many of these loans are “underwater” or “upside down”.

The concern is that as more and more people realize that they are paying more on their home than it is worth, sometimes involving tens or hundreds of thousands of dollars, more people will go into default. The even bigger concern is for those who took out adjustable and option rate mortgages with low initial payments that later jump up to much higher payments in the third to fifth year.

Most of these were originated at or near the very top of the bubble around 2005 and 2006, and are due to reset throughout the next few years. A huge chuck of them reset in August and September, although we won’t know the default rate on those before the election.

The second concern is for the economy, and in particular unemployment. If the unemployment rate continues to rise, then it is a foregone conclusion that many, many more mortgages will go into default. This also means there are that many less people to buy up distressed properties in foreclosure auctions, which further forestalls a recovery in housing.

Hope that helps. It is a very serious situation, indeed.

that I am most worried about.

Economic conditions like the ones we may have ahead are things that current generations (even my own Gen X) have never had to deal with in their lifetimes.

History has numerous examples of bad economic circumstances leading to even worse governments, and eventually to wholesale bloodshed.

I cite as merely two examples the conditions in Germany and the U.S. in the years prior to World War 2 – the Great Depression; and the years leading up to the U.S. Civil War when Southern Democrats blamed the industrialization and progress of the North for the economic conditions in the agricultural Old South.

The only time I can think of a time when a bad economy helped capitalism and the cause of the free market was during the stagflation of the Carter Era. That helped bring Reagan to power and the great economic success of the 80′s. Hopefully something similar can happen out of this, although it probably won’t be until 2012.

I’m sick of Republicans bringing a knife to a gun fight.

The best way to defeat the Left is to use their own tactics against them.

That means smearing them and the money behind them as much as possible to discredit them as corrupt and unworthy of government.

I wrote a couple of diaries last night and today about the big liberals and Democrat donors behind the Washington Mutual and Wachovia debacles. We should hit the Democrats hard with the fact that their people created this, made millions from it, and then funneled that money right back into Democrat politicians.

It’s the Democrats’ Enron.