Charitable as the thought might be, Washington simply doesn’t have deep enough pockets to bail out every deadbeat.

What they didn’t tell you was that the Fed had already lent the banks some $2 trillion dollars. And you know what? They still would rather not admit this mind-boggling giveaway. They don’t want to talk about who got the money. Nor do they wish to discuss what kind of crappy assets were put up as collateral.

When queried as to just where the trillions went, neither the lame-duck Bush administration nor the incoming Obama administration offered more than a stern “no comment.” Bloomberg has filed a Freedom of Information lawsuit that may someday bear fruit.

But don’t hold your breath.

Distressed Assets Are Just So, Well, Distressing

In the meantime, the Grand Cabal has become bored with mere “distressed assets.” Within hours of receiving permission to buy those icky bonds, it confessed that they were unpriceable after all. Instead, Washington would simply buy stakes in all the banks.

And what if you didn’t screw up and put your particular bank over the barrel with worthless subprime bonds and mutant debt swaps? What if you acted like a respectable grownup banker, instead of some kind of cocaine-maddened 24-year old derivatives trader, and kept your depositors’ and investors’ needs front and center?

In that case: Tough luck, Chuck!

The Cabal is in charge now, pal, and everyone has to toe the line... or get left out in the cold forever more.

It’s a Recession After All -- Who Knew?

As if that weren’t enough, there’s more: After being warned for over a year that the real economy was suffering as much as (if not more than) their friends on Wall Street, Bernanke, Paulson, et al, finally noticed that we might just be in a real recession.

Real people were having a hell of time buying groceries. And real businesses were firing workers willy-nilly. What’s more, they didn’t stop when Washington bought up the banks!

What an outrage!

Just Buy It All!

So now it seems we’re going to have to find a way to bail just about everyone out. GMAC Financial Services (GJM: NYSE) – once General Motors’ sole profit center – wants to be redefined as a bank so that it can qualify for a piece of the pie.

Not to be outdone, American Express (AXP: NYSE) is begging for a modest $3.5 billion too, lest it come undone from the stress of failing sales and skyrocketing defaults.

(I must confess that I have participated in pushing this doddering gray lady of the credit world to the curb. I tore up my card when they transferred their service bureau to Bangalore.)

Furthermore, insurance outfits like MetLife (MET: NYSE) and Allstate (ALL: NYSE) are drooling over American International Group’s (AIG: NYSE) new terms. Remember that $80 billion we “loaned” them? Well furgedaboudit, because we will in all probability never get a penny back – and more is going down the hatch.

GM Puts Six Million Workers On the Line

Oh, and speaking of GM, they have very publicly announced that if they don’t get a very large piece of the action, they will simply shut their doors – throwing an additional 266,000 workers onto the breadlines.

(That is roughly the number of full time workers at GM. Some analysts claim that after adding in all the folks who cling to GM’s mighty sides, the real figure is somewhere between 3 and 6 million!)

No doubt Ford and Chrysler are watching closely, prepared to scream, “Me too!” at the drop of a hat. If Washington does bail out the automakers (and I believe that they will), there is every likelihood that they will shaft both shareholders and bondholders in the process.

(For those who are interested in capitalizing on this particularly horrid storyline, Bryan Bottarelli and I have offered WaveStrength Options Weekly readers an option straddle that ought to capture some 15%-40% gains regardless of what Washington does for the automakers.)

Heck, even the National Marine Manufacturers Association has dispatched a delegation to Washington, to find out if its members qualify for a place in the “grand gravy train” that this wasn’t supposed to turn into.

A Bill No One Could Possibly Manage

So why not just bail them all out? Why not just cut a billion-dollar check right now for each and every deadbeat and sad sack who was not prepared for “the sudden downturn” that has been clearly coming for over a decade?

Try this on for size: our current annual GDP is estimated at some $14 trillion and falling. Over the past six months we have already given away some $2.5 trillion. And with the cost of running the rest of government, not to mention a couple of grueling wars, we are out another $10 trillion or so.

When the rest of the world sees spending like this (i.e. the folks who buy our bonds and fund it all), they shrink back in horror. Word is already circulating around the global finance community that the danger of default may even cause the U.S. to lose its triple-A credit rating.

If this happens, we would have to double or triple (at least) the bribes we pay out to entice bond sales. Our already skyrocketing deficit (currently somewhere in the vicinity of $10 trillion) would further expand geometrically.

Simply put: There ain’t enough dough in world to save every deadbeat. The charitable impulse is nice enough. But it simply cannot be done.  

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Other Related Topics: Bank Bailout , Editor Adam Lass , Recession