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So we have a bailout?

September 28, 2008

The bailout negotiators say they have a plan. Details are still sketchy, but the Wall Street Journal reports that there are two tax provisions:

- an extension of the tax-free treatment of debt forgiveness on home mortgages, otherwise due to expire after next year, and

- A special rule that would allow banks to take their losses on Fannie Mae and Freddie Mac stock as ordinary loss. The would otherwise be capital losses, most of which would probably expire unused.

While the WSJ reports "Bailout Package Gains Key Support," the Intrade futures market on whether a deal will be reached is crashing. It was giving the plan a 90% chance last night, but the latest trades are around 50, with one recent trade as low as 35.

I'm surprised how much trading there is on this Intrade contract. I wonder if there is some problem with the deal that hasn't yet been reported, or if it is something else - wild rumors, maybe. Or it might just be because of the September 30 deadline for an agreement in the Intrade contract.

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