You Call That a Bailout, THIS is a Bailout

Boy, it's Monday and there is already a years worth of news to report on the bailouts, credit markets and the global economy.  The central banks the world game out of the G7 meetings with a real fire lit underneith them, some might say desperate and have been enacting financial measures almost hourly in an attempt to unstop the credit markets.  There seems to be a lot of throwing *#$ against the wall to see what sticks, if the markets don't react something that is announced, forget about it and announce something different.

Lets start with the US

An updated bailout plan has been reported by the Wall Street Journal that is significantly different in many ways that what was submitted in approved by Congress. 

1. $250B of the money will be used to purchase equity (preferred stock) in over 2,000 banks in the US, which essentially is a partial nationalization of our banking system.  Preferred stock will be purchased immediately in the top 9 banks which the FED and Treasury just finished meeting with.  Some of the banks were reportadly not to happy with the plan but didn't have a whole lot of choice in the matter.  I suspect most of this will likely go to small number of choosen banks (Citi, BofA, Goldman, Morgan) into which most of the smaller banks will be consolidated over time.
   
2. The FDIC expected to temporarily lift the insurance limits for non-interest bearing bank deposit accounts.
3. The FDIC will insure all new FDIC preferred debt issued by banks and thrifts.  This basically means that if I'm a big fund and I want to invest $5B into Mr. Bank, the FDIC will insure my investment.  The idea is to try and jump start external recapitalization of the banking system, by insuring the investments of big investors.

We've also got a report from Saturday in Bloomberg that Fannie and Freddie (recently nationalized) have been instructed to purchase $40B in under performing mortgage bonds (mainly subprime and ALT-A) off banks balance sheets each month.  In effect this is additional debt being purchased by the US government off above the $700B authorized by Congress. The three plans above are easily going to require additional government borrowing of several trillion dollars.  Again, where is this money coming from?  I believe the current policy actions are almost guarenteeing a bond market crash and double digit interest rates in the near future.

Now onto Europe

1. Germany commits $681B to bank bailouts, given our GDP is 4.3x theirs, that is the equivilent to the US doing a $2.4 Trillion bailout.  On a side note if you think our banking system is in bad shape the German banking system is so levered, a mere 2% drop in bank asset value wipes out the net worth of their banking system.
   
2. Britain nationalizes the Royal Bank of Scotland and HBOS, and there are discussions about nationalizing utility and transportation companies if things get any worse.
3. The French commit about $480B to bank bailouts, given our GDP is 7x theirs, that is equivilent to the US doing a $3.4 Trillion bailout.
   
4. The Dutch commit $200B to bank bailouts, lets see 1/20th our GDP so, that's like them doing a $5 Trillion bailout
5. Spain is committing $100B, so at a GDP 1/12 ours so, that's similar to us doing a $1.2 Trillion bailout

There's some other ones in there to, but that is an absolute ton of money being thrown around, money that quite frankly that doesn't exist.  Either the collective central banks are bluffing and hoping that the credit markets will unstick without having to follow through, or a ton of new worldwide debt will need to be issued.  Supply and demand again says long term interest rates worldwide are probably about to do a rocketshot northward.  Here's a hint, you can't borrow your way out of a debt crisis.

Did they unstick?

Despite all of these additional bailouts over the weekend in Europe, LIBOR and the TED Spread barely came down, meaning the credit markets did not unstick themselves to any material degree.  The US bond markets where closed today so it's hard to get a good read on things, but tomorrow morning should be very telling.