The Remedy Is Also the Problem

Meredith Whitney writes in yesterday’s Wall Street Journal, there’s no need to guess if states will be bailed out of their debt troubles.

They are being bailed out right now, many times over. They are being bailed out by federal bonds, federal transfers, and as I and many others have argued, by fictional accounting. One sobering fact: in 2009, 30 percent of California’s new debt issuances were subsidized by Build America Bonds. States with massive budget gaps have been subsidized to take on more debt rather than tackle the drivers of budget crises: a sustained period of unsustainable spending.

Yet, as Ms. Whitney writes, the reaction of some economists should any local or state government end up unable to pay its bondholders  (like the City of Harrisburg) is yet another federal bailout.