Whoever coined the phrase, "Timing is everything" sure wasn't kidding.

Bank bailout

How much does it cost to buy an election and who pays? Well, let's forget about the cost of the campaigns for now. You have at least $700 Billion to bail out the planet on top of the $200 Billion (at least) to bail out Fannie and Freddie Krueger and $85 Billion to take over AIG. That's a cool trillion in two weeks. So it's no surprise that we'll need to increase the debt ceiling to $11.3 Trillion.

The bailout won't work. It might make us feel more comfortable for a while, but it will ultimately fail. What is going to happen is the government will determine what these toxic securities are worth. They will arbitrarily say, for example that they are worth 50 cents on the dollar. While any amount is better than the goose egg that is their current valuation, many banks may decide to leave them on their own books if they think the government's assessment is too low. With $62 Trillion (you read that correctly) in Credit Default Swaps still outstanding among ever widening spreads, this is way too big for any government, especially one whose AAA S&P rating is teetering on a historic downgrade.

Last April, The Bank of England noticed the problem with banks hoarding cash instead of lending to each other. In an effort to shore up their own banks' balance sheets, they introduced a program that would allow commercial banks to swap damaged mortgage-backed securities for government bonds. This presumably is what our government is proposing. While The Bank of England's plan has stopped lending volumes from falling further, the level they have fallen to still reflects a weak confidence in credit quality, according to Bank of England Governor Mervyn King.

The FDIC

If you have money in a bank, don't worry!! The FDIC has your back. They have about $50 Billion left to insure $4.2 Trillion in deposits. Except for one little detail - the FDIC doesn't have any money either. Lyndon Johnson changed the way the FDIC funds are accounted for. He had this little war he needed to pay for so he ordered the premiums that banks pay for depositor's insurance deposited into the general fund where they go against the budget. So just like Social Security deposits, depositors insurance exists for Congress' benefit - they get to spend it and in return they give us gullible taxpayers a promise. The FDIC's balance sheet is nothing more than worthless paper for which the taxpayer is on the hook. Now, every time you hear of a bank failure, just say "you're welcome!"

Quadruple witching

Four Fridays a year are known as quadruple witching days. It's when stock index futures, stock index options, stock futures, and single stock options all expire on the same day. With over 90% of options purchased expiring worthless on these days for the given time period, sellers usually win the bet and buyers usually lose. There isn't anything wrong with this practice - just think of options buying the same as you would buying car insurance, except that you're insuring your stock holdings. But just two days before this particular options expiration Friday, sellers of options were down, really down. They were losing billions. But then a miracle happened! In just 4 hours between the end of trading on Thursday and the first part of Friday, the Dow moved 1000 points and the week finished essentially unchanged and well within a two month trading range, saving options sellers and the institutions that sold them. I'm not normally a conspiracy kind of guy but is it just me or does a 1000 point movement in the Dow occurring exactly when it had to sound a little too convenient to anyone else?

The election

Here we are six weeks before the election. Congress, with its 9% approval rating is all for bailing out the planet. Add a White House administration that will do anything to stave off the inevitable for the next President to this banking mess, and you have a perfect storm of ridiculous government interference on a super cycle scale. But even though only 9% of us think Congress is doing what it's supposed to and since the $700 Billion comes with no congressional or judicial oversight, Barney Frank wants more. He wants a few "throw-ins!" Frank wants a second "stimulus" that includes infrastructure funds, low income energy assistance and Medicaid assistance. There is no estimate on this part of the package but rest assured that original $700 Billion won't stop there.

Investment banks and politicians stand to gain from this mother of all bailouts. But it is we the taxpayer who ultimately lose on a plan that isn't going to work any more than the $300 Billion we threw at the banks in July, or the $158 Billion we passed out to people who pay taxes and also to people who don't.

The dollar

This bailout is supposed to encourage the banks to loosen their lending practices. But with the threat of recession looming, these banking institutions will likely be reluctant to do so. Unfortunately, our government has to borrow the money it needs which will weaken the dollar further.

The final cost of this bill will be decided by Congress and the President will sign it even though he warned Congress about attaching their pet projects. But we no more have the money to pay for this than we do to cover our Social Security obligations (starting in 2017), protect the folks' bank deposits or pay the medical bills for the elderly. We're setting up an environment for stagflation, where what little money there is costs way too much to borrow, unemployment is high and everything costs more. In spite of what the pols tell you, we do have a choice. We can let those who deserve to fail, fail.