Feds pulled another $800B out of their ………………hat? Taxpayer hat that is.

Actually that’s not even accurate. The Fed is essentially creating the $800B first to purchase debt and then using taxpayer money to weed out the bad loans. The initial plan to purchase bad loans from banks was scrapped but has now been restructured to buy $500B worth of higher quality mortgage securities.

In addition, the Feds will purchase bundles of consumer debt, credit card debt, student loans and car loans in an attempt to free up the seemingly frozen solid credit markets.

Let’s stand back here and take a look at how the surviving banks made out. The industry has been criticized for booking tremendous profits while taking huge risks and then being propped up, bailed out, and then practically having all loans now guaranteed by the Feds. We even fund the loan loss reserves on the guarantee.

It’s probably not fair to say that the banks have refused to lend trying to leverage consumer pain into a government handout but it looks like that to some. The Feds have done everything possible to get banks to lending to consumers again before Christmas.

Everything except loaning directly to consumers but that will be coming if the banks don’t fork over loans. We can call it the “Consumer Loan Administration” or CLA.

We might as well have the profit if we are going to guarantee it all. Lastly, the bad loans are still sitting on bank books and tax payers will eventually have to ante up again to buy those as well.

It’s been absolutely amazing how the Feds have been able to orchestrate such historic moves while still maintaining a sense of confidence in the banking industry.

Who would have thought that the investment banking industry would have collapsed in such a short period of time? It’s inconceivable that so many investment banks cut off their head, shot themselves in the chest, broke both legs and then jumped into a volcano to ensure there could be no survivors.

And all for a buck.

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