Insuring Bankruptcy | Richard W. Rahn | Cato Institute: Commentary

Insuring Bankruptcy | Richard W. Rahn | Cato Institute: Commentary: "If you were in debt, would you be more or less likely to increase your liabilities if you knew someone else would pay them off? Many children can quickly figure out the answer to this question, but it seems to be a real stumper for members of the House Financial Services Committee, chaired Rep. Barney Frank, Massachusetts Democrat. They are considering having the federal government reinsure municipal bonds."

"If California is bailed out, other governors and mayors are going to think, "Why be prudent if the Feds will rescue me if I am irresponsible and overspend?" If that occurs, there will be no limit to the liabilities that ultimately will be dumped on the American taxpayer. Those of us who live in relatively well-managed states like Virginia will be responsible for all of those who have been less responsible — without end."

"The low-tax states tend to have higher income growth and lower unemployment rates than do the high-tax states. And, as would be expected, people move — particularly the most productive and the highest-income earners — to lower-tax states as they increasing flee high-tax states.

Past financial disclosures by members of Congress have shown many of them own state and municipal tax-free bonds. If any members of Congress vote to insure, reinsure or provide any other form of bailout for such bonds, they will have a very direct conflict of interest because they will be voting to bail out their own portfolios (and/or those of friends and family), all at the expense of the taxpayer."