Washington has sucked up every last available dollar, and then blamed the banks for not lending what they don’t have.

Connecting the dots used to be considered a child’s game – far too easy for adults, who ought to enjoy more challenging pursuits like chess or poker.

Apparently this is no longer the case. Several times over the past few years, we have heard folks in positions of real responsibility claim that it was “simply not possible” to connect the dots.

Couldn’t connect the Challenger engineers’ repeated warnings against cold launches to that day’s weather report… couldn’t connect a series of concerted attacks both at home and abroad to the eventual destruction of the World Trade Center… couldn’t connect failing incomes and rising costs to the inevitable end of the real estate boom and collapse of the banking system…

1, 2, C?

Adults appear to have completely lost this supposedly elementary art. I have been nursing an idea about this for some time. If you find social theorizing interesting, read on. (If not, skip down a couple of paragraphs, and I’ll connect a few really important dots for you.)

The idea is this: The nuclear family has destroyed our ability to plan ahead. When we lived in large, extended families, we could easily see how small variations on personal narratives might play out.

Our moms stayed home, but our aunts worked… one cousin studied, got good grades and went to Yale – another got stoned and went to jail… brothers got married, sisters did not…

These endless permutations allowed us, indeed forced us to observe, if not actively participate in, an endless series of parallel sequences of challenge, decision and result, all hitting close to home and thus relevant as can be.

No Sequence, No Con-Sequence

With the advent of modern travel, our extended families dispersed to the far corners of the Earth (or at least the country). The advent of birth control has vastly reduced the average size of our little localized nuclear families. Now our view of alternate family storylines is truncated at best. Rather than a vast web of overlapping sequences, we have generations that disavow each other’s narratives as completely irrelevant.

And without a sense of sequence, the can be no understanding of con-sequence... no innate ability to connect the dots.

I suppose I ought not complain. One might easily posit that this societal loss is the sole reason I am employed! I am, after a fashion, a professional dot connector after all.

And by now, you would probably like me to stop expounding on social matters and connect a few market-related dots for you.

Let a Pro Do It

So here we go. Reuters and the University of Michigan tell us that Consumer Sentiment is at a three-month low. The reasons given? Primarily unemployment (and the fear of losing homes).

Similar studies reveal that nearly half of all U.S. citizens are either facing foreclosure or know someone who is. One third of all U.S. mortgage holders have approached their banks looking to have their payments reduced.

And the U.S. Department of Agriculture now tells us that some 49 million people – roughly 15 out of every hundred households, and the highest such count since they began keeping track back in 1995 – struggles with what one used to call “hunger,” but is now labeled as “food insecurity.”

The Federal Reserve has warned us not to expect this circumstance to change any time in the near future. In an early look at one of the polls the Fed compiles in its Beige Book, business correspondents (i.e. “ employers”) warned that they anticipate unemployment averages to remain above 10% for the duration of 2010.

Can Someone Lend a Dime?

Treasury Secretary Timothy Geithner (who has funneled trillions of borrowed dollars into the pockets of his friends on Wall Street) responds to all this by castigating U.S. banks for not lending more money to small businesses.

“Without increased access to credit for American families and small businesses,” Geithner says, “growth will be weaker, companies will defer long-term investments, and we will not be able to create a recovery that is self-sustaining and led by private demand.”

And what of the ultimate fate of those banks, particularly the small and midsized ones that do most of the lending to local entrepreneurs and work-a-day homeowners? Some 120 of them have been shut down so far this year, their assets handed over to a few large favorites. This has led to the complete dissipation of the Federal Deposit Insurance Corporation’s rainy day cash – the set-aside funds marked for isolating losses and retaining American faith in the banking system.

The FDIC could simply beg the Treasury to replenish this fund. Unfortunately, however, the Treasury is 1) in desperate straights itself, and 2) the FDIC’s mortal enemy in Washington’s post-collapse intramural turf wars.

Borrowing From Peter to Pay Paul

Rather than prostrate herself before her cross-town foe, FDIC headmistress Sheila Bair decided to tax each and every American bank a one-time flat fee. Unfortunately, that would have forced many of her smaller charges to fail the ongoing “stress tests” the FDIC is forcing on all banks. (Some less than charitable wags have suggested that small bank failure might actually have been the point to the exercise.)

Now the FDIC is choosing instead to ask all banks to simply prepay the next three years or so of their regular insurance payments, in the hopes of raising some $45 billion against the estimated $100 billion in estimated future defaults.

Again, folks who CAN connect the dots have pointed out that this would still adversely impact the smaller banks. So Bair has offered them an ill-defined “pass” of sorts. “If you can’t pay right now, well, maybe we’ll let it slide for a while.” And maybe she’ll close you down anyway, and hand your assets over to one of Washington’s friends.

Can’t Lend What We Ain’t Got!

Regardless of all that, somehow no one has connected the really big dots – like how the heck banks that are paying for the next three years of other banks’ defaults are supposed to be lending to regular folks so they can get on with business.

Following the dots to their conclusion, Washington has already sucked all the money out of the system and handed it off to the usual suspects. And now they are complaining that Main Street won’t get on with it.

Clearly no dot connecting here...

Other Related Topics: Adam Lass , Banks , Federal Deposit Insurance Corp , WaveStrength Options Weekly

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