The bluff is not that nothing will happen to the economy if the bailout doesn’t pass, but that the bailout will do nothing to stop the depression (but lots to deepen it).

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Scare tactics.

All of a sudden, the economy is in dire danger of unknown horrors, we are hearing from Bernanke, Paulson, Bush, and the US press, especially the financial press. Unless the bailout passes, and RIGHT NOW, stocks will crash, your bank will fail, your home will keep losing value, and your employer will go broke and fire you. All of the bankers’ stooges who were trying to get us to look the other way since the credit markets started to freeze up 13 months ago are trying to scare the daylights out of the US public. How to avert the crisis? Give the con men who created it a blank check drawn on the US Treasury, of course.

This campaign reminded me of a spot-on comedy skit by the British Comics, Bird and Fortune, that popped up on YouTube 12 months ago, back when nearly all of my acquaintances all thought I was nuts for stocking up on put options and gold.

I recommend the whole thing, but the end (jump to 7:20 if you’re in a hurry) was particularly prescient. I transcribed it below, but it’s more fun to watch:

These are the lines was I reminded of today:

Interviewer: “But now, you see, the people are saying that now the crisis is going to turn into financial meltdown. I mean can that be avoided?”

Investment banker: “It can be avoided, provided that governments and central banks give us, the financial speculators, back the money that we’ve lost.”

Interviewer: “But isn’t that rewarding greed and stupidity?

Investment banker: “No, no. It’s rewarding what the Prime Minister, Gordon Brown, called “the ingenuity of the markets.”"

Interviewer: “I see…and, and …

Investment banker: “We don’t want this money to spend on ourselves. We want this money just to go into the markets so that we can go on borrowing and lending money as if nothing had happened without thinking too much about it.”

Interviewer: “Yes, but, if the worst came to the worst, and you didn’t get this money, what then?”

Investment banker: “Well then, there would be another market crash, and then I would say to you what people like me always say, that it’s not us that would suffer, it’s your pension fund.”

Interviewer: “Thank you very much.”

_____

George Bush, tonight: “The stock market could drop even more, which would reduce the value of your retirement account.”

Call the bluff.

I have zero hope for a sensible outcome from the US government. Politicians are not debating the concept of bailouts and moral hazard; they are debating which irresponsible parties get how much. ‘Compromises’ will be reached that allow for grandstanding all around, but the core of the bill will give bankers what they want.

The executive salary cap for bailout recipients is a red herring. Manhattanites will figure out other ways to get their hands on these trillions, ways that don’t involve holding executive titles at big banks. Those banks are dead in the water anyway — it wouldn’t surprise me if they were completely nationalized over time. Another dispute is over equity — the government will get its equity position, sure, but the equity is worthless. And of course, everyone wants to throw in money for the idiots who are underwater on their mortgages — they’ll get theirs, if not in this round, the next.

By the way, anyone else notice the tactical similarity to how seven Septembers ago we were subjected to the same kind of scare tactics and rhetorical bombardment while another huge and unconstitutional bill was being rushed through Congress?

All over but the shouting.

We will get a depression. We’ve got it already. If US still had any character, this would be a short and relatively painless lesson in giving government too much power, which really means giving power to bankers. I say painless not because nobody will go broke — they will, in spades — but the pain will be like the first weeks in fat camp or reform school, not the gulags.

There will be no reformation this time. Americans of all intelligences are confused and ethically bankrupt after 100 years of saturation in nationalist and socialist propaganda by schools and media. This lack of a moral compass or common sense assures us that this will be the worst depression in our history, and maybe the last.

As the depression deepens, a terrified populace will allow the government to grab more and more power, until society is completely transformed. Remember those emergency powers that the executive granted itself last year? You better believe they are being readied. This stuff happens, folks. This is what human beings do to themselves, with great consistency. Freedom and prosperity are the exceptions to the rule as far as history is concerned.

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PS — Buy the bailout rumor, sell the news? If I had to pick a date for the start of the Crash, it would be the day after Congress passes this bill.

Disclosure: I’m short the equity markets with put options and inverse ETFs. See disclaimer.