It’s a pity that McArdle starts her post by claiming “it is indisputable that the Bush tax cuts made our tax base more progressive”, since that detracts significantly from what she has to say. It is true, as McArdle claims, that a larger portion of the tax base is paid for by the wealthy now than before the Bush tax cuts, but that ignores the facts that a) the wealthy have more wealth to pay taxes on now than they did before, and b) the tax rate cuts themselves were not “progressive” unless one ignores middle class tax rates.

So, McArdle is technically correct about the progressiveness of the “tax base”, a bit deceptive in not mentioning the lack of progressiveness of the Bush tax rates themselves, and dead wrong about the subject of “indisputableness”.

But that was just the sideshow.

Her main thesis, that we are looking at a rough period budget-wise in the near future, and that that rough period will be made even rougher to the down-turn in rich folks’ portfolio’s, I think is absolutely correct. I pity the next President. Thank you Mr. Bush.

The result is a huge shadow market that may control our financial destiny, and yet the details of these private insurance contracts are hidden from the public, from stockholders and federal regulators. No one knows what they cover, who owns them, and whether or not they have the money to pay them off.

One of the few sources of information is the International Swaps and Derivatives Association (ISDA), a trade organization made up the largest financial institutions in the world. Many of them are the very same companies that created the vast shadow market, lobbied to keep it unregulated, and are now drowning because of unanticipated risks.

ISDA’s CEO, Robert Pickel, says there is nothing wrong with credit default swaps, and that the problem was with underlying mortgage securities.

“It is something that we all need to look at and learn lessons from,” Pickel said blandly to Steve Kroft, as if talking about something no more weighty than improving his golf game. “And we all need to work together to understand that and design a structure in the future that works more effectively.”

“These people understand the nature of these products. They understand the risks,” Pickel said when Kroft challenged him further.

Well if they understood the risks, why, when everything went bad, why do we have to pick up the pieces?

“These are very useful transactions. And the people do understand the nature of the risk that they’re entering into…but I’m not sure that…,” Pickel says.

“Useful?” Kroft interrupts. “How come they brought down the financial system?”