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Friday, August 17th, 2007

Time Event
12:40p
More Republicans leaving House, What Cost The Mortgage Meltdown?
Within the last two days, Deborah Pryce (R- OH) and Chip Pickering (R-MO) have announced they will not seek reelection. Pryce is not a surprise. She barely held on in the most recent election and the mood of the country and Ohio has not changed much in a year. But Pickering is from a safe district and well placed on the Commerce Committee. I confess that one surprised me.

Meanwhile,Federal law makers better get ready to subtract a couple of billion out of next year's budget. Why? Interest rates are soaring. That automatically increases the deduction on mortgages and home equity lines (which are fully deductible). Stock loses are likely to reduce the revenue from capital gains. And all that assumes that the damage is contained to the subprime sector without spillover into a general recession.

Prudent lawmakers would begin fiscal tightening and looking to raise revenue in other ways (such as rolling back the tax cuts on the top 1% of earners). But such moves are inherently unpopular.

Better pray the 700 MHz spectrum auction does better than the $10 billion estimated in advance by Congressional Budget Office (CBO). Anything over $10 billion (less the expenses of running the auction) will be gravy that can offset the unanticipated decline in revenue.

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