From the WashingtonWatch.com blog:

Just two weeks after the passage of the bailout bill, and one day after a Treasury Department official declared, “we are committed to transparency and oversight in all aspects of the program,” the Treasury Department began covering up the amount it would pay to New York Mellon Bank to act as a financial agent in the bailout.

Spending $700,000,000,000.00 in taxpayer money is not business as usual. And hiding the terms of government contracts shouldn’t be business as usual anyway.

Friend of TLF and chief political correspondent for CNET Declan McCullagh has a new column on CBSNews.com called “Other People’s Money.”

Nice name, but we’ll have to see whether his status as a fully decorated part of the mainstream media draws him from principled writing to constant applause for self-appointed experts who want to spend our taxed-away dollars for us.

His freshman effort looks pretty good. “Will U.S. Taxpayers Need a Bailout?” points out the perils of politically directed investments in the banking sector.

Members of Congress whose votes changed, allowing the financial services bailout bill to pass.

I recorded a video interview about the financial services bailout with Mark “Rzzn” Hopkins and Sean P. Aune of Mashable recently, focused particularly on the tech sector. We focused on making sense of things, something that hasn’t happened in Congress yet.

I think it’s pretty informative, and somewhat calming, as it should be. I’m less and less convinced that there’s a “crisis” that taxpayers ought to take pay for taking care of.

I’ve posted a copy of the proposed bailout legislation online in html format, which is easier to read, copy, and paste. Considering its size and significance, I urge you to review it and share it with others.

I pointed out before that my employer, the Cato Institute, has several experts on the bailout, and media producer Caleb Brown has ably drawn them out. Give a listen to his podcasts with Bill Niskanen, Jagadeesh Gokhale, Arnold Kling, and Gerald P. O’Driscoll. [all mp3 format]

There are a couple of elements of the legislation where I might add some insight, so here goes.

Congressional Oversight? Nope. $700 Billion Spent

The bill made available Sunday devotes a good deal of verbiage to oversight of the proposed $700 billion bailout. But it doesn’t do anything to prevent that money being spent. The major impediment to blowing through all the money is in Section 115, entitled “Graduated Authorization to Purchase.” It would immediately grant the Treasury Secretary authority to spend $250 billion. At any time, the President could send a certification to Congress and the spending authority would rise $100 billion more. After that certification, the President would have only to submit a plan to spend yet more and the Secretary’s authority would rise to the full $700 billion.

Only if Congress introduced and passed legislation to stop further spending would it be capped at $350 billion. Congress would almost certainly not pass such legislation, and even if it did the President could veto it, requiring an impossible-to-reach supermajority in both houses to stop the spending.

Passage of the “Emergency Economic Stabilization Act of 2008” would cause $700 billion to be spent – gone – just like earlier proposals. There is no effective limit on spending in this bill.

Yes, there are a number of oversight mechanisms, and no grant of unreviewable discretion as appeared in a ham-handed earlier proposal. These improvements are all about how the barn door will be closed once the $700 billion is gone.

Covering Over Economic Reality With a “TARP”?

The central feature of the bill is the creation of “TARP,” the “Troubled Asset Relief Program,” in Section 101. The TARP would exist to “purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary . . . .”

We know that mostly these are going to be mortgage-backed securities of the type issued by Fannie Mae and Freddie Mac. Fran and Fred issued these – and financial institutions bought them – with abandon because of the implicit (and now realized) government backing Fannie and Freddie enjoyed.

Currently, these securities have no value – “worthless paper,” everyone says. This is not because they are valueless, but because there is enough uncertainty about their value that nobody knows how to price them, so nobody is currently buying.

The idea behind the bailout plan, it seems, is to remake a market for this paper by having the federal government buy it. But it won’t work. And here’s why.

(N.B., I’m a lawyer and strictly an amateur with economics. There are weaknesses and disanalogies in what you’re about to read, but this is the best non-economic “Man on the Clapham Omnibus” explanation I’ve been able to assemble so far.)

Imagine there was a burgeoning trade in beach sand. Because of all the profits others had made on buying and selling beach sand, people came in to the beach sand market and bid up the price, hoping to get their cut of the money to be made.

Then one day, someone pointed out to all the beach sand traders that there’s beach sand all over the place at the beach. There’s so much beach sand that it can’t possibly be worth what people are paying.

Immediately, the market for beach sand would stop functioning, as everyone who held beach sand would not be able to find someone who would buy it at a price they could accept.

What’s the solution to this problem? A downward repricing of beach sand.

There is no alternative but for the market to reform around lower-priced beach sand.

Now, what if the government came in and bought $700 billion dollars worth of beach sand? Current holders of beach sand would get a tremendous windfall, and the government would get a lot of beach sand, but the market for beach sand would not be restored. It would only return when beach sand was again priced at a value that people believed was right. Taxpayers would be out $700 billion and the market for beach sand would be no stronger than before.

Now, there are disanalogies between what I’ve said and the proposed financial services bailout. Unlike beach sand, which is essentially infinite and thus very cheap, mortgage-backed securities actually do have some value. The market just has to discover what it is.

There are good buys right now, and some of the financial services firms that over-committed to mortgage-backed securities and other precarious financial instruments are good buys for smarter players too. These securities and the companies that held them need to be repriced, and there’s nothing the government can do to change that – or control their prices.

Another weakness in my story is that it omits the other roles that beach sand-traders might have. The financial services firms that got hung up on mortgage-backed securities do lots of other lending that lubricates our economy, and they might have a rough time doing it now. Say beach-sand traders are also integral to the glass industry – we’re looking at glass shortages because of the collapse in the sand market. But we had better face that reality rather than trying to avoid it with bigger, more audacious manipulations of economic value than we saw in Fannie Mae and Freddie Mac.

Government attempts to support the prices of mortgage-backed securities, of the housing stock, or of our country’s financial services firms will almost certainly end in disaster.

There is no putting a “TARP” over these economic realities, and there is nothing better we can do than to get on with letting the losers lose. No bailout.

Boynton Beach, Florida’s experiment with municipal wi-fi has ended.  [Add it to the list of recent failures]. According to the South Florida Sun-Sentinel:

There’s a roadblock in Boynton Beach‘s information superhighway. The city’s Community Redevelopment Agency decided this month it has no more money for free wireless Internet service in its district.  Boynton Beach was the first city in Palm Beach County to offer Wi-Fi three years ago. It operated 11 “hot spots,” or access points, paying $44,000 annually for vendors to keep the system running. But the CRA dropped vendors who failed to meet their contracts. Other companies wanted to sell the Community Redevelopment Agency new equipment, but in a tough budget year, offering free wireless was no longer viable, said the agency’s executive director, Lisa Bright.  […]  “There is clearly no way for it to be a revenue generator at this time,” Bright said. “It’s premature for us to go to the next level.”

Whenever I read one of these articles about the small town or mid-sized town wi-fi experiments failing so miserably I have to admit that I am a bit surprised.  After all, many muni wi-fi supporters have argued that it is precisely in those communities where government support is most necessary and will be most likely to fill in gaps left by sporadic / delayed private broadband deployment.  Frankly, I always thought this was the best argument for muni wi-fi and it’s why I made sure to never go on record as opposing all government efforts, even though I am obviously a skeptic and don’t like the idea of wagering taxpayer money on such risky ventures. (By contrast, I could just never see the reason for government subsidies of wi-fi ventures in major metro areas with existing private broadband operators. Like Philly and Chicago.)

But the fact that many small town or mid-sized town wi-fi experiments are failing is really interesting because it must tell us something about either (a) the viability of the technology or (b) demand for such service.  Now, many municipalization believers will just say that clearly (a) is the case and argue that we just need to wait for Wi-Max solutions to come online and then all will be fine.  It certainly may be the case that Wi-Max will help boost coverage in low density areas, but is that really the end of the story?  What about demand?  What really makes me mad when I read most of these stories about current failed experiments is that they rarely give us any solid numbers about how many people utilized the services.  To the extent any journalists or analysts are out there contemplating a story or study on this issue, I beg you to dig into the demand side of the equation and try to find out how much of the currently muni-wifi failure is due to technology and how much is due to demand, or lack thereof.  Of course, government mismanagement could also be a culprit. But I suspect there is a far less demand for these services than supporters have estimated.