The Most Expensive Bailout In US History

To say the last few weeks have been unruly is a gross misstatement. In the latest chapter of American’s financial tragedy-a foul tale of extreme greed that’s led to the widespread suffering of millions… you, me and every other tax-paying American-we just loaned $283 a person to AIG.

And the absurd thing is… no one asked.

They (the U.S. Government) threw together an $85 billion loan, and handed it to a corporation with an ability to lose billions of dollars in the blink of an eye.

And now we learn that as much as $1 trillion could be needed to avoid an imminent meltdown. The solution, being touted as the most expensive bailout in U.S history, will surely make it difficult for the next president to push for tax cuts or new spending.

What About Economic Growth?

Says Sen. Jim DeMint, a member of the Joint Economic Committee, in the Los Angeles Times: “What is missing from it and from the recent string of bailouts is a commitment to return to a free enterprise economy. … What we need now is not what could be nearly a trillion dollars in new taxpayer bailouts but pro-growth policies that allow our markets to correct and start growing again.”

Worse, let’s not forget these legendary institutions… each completely blown out of the water:

• Lehman Bros. (LEHMQ.PK) and Bear Stearns… gone.
• Freddie (FRE) and Fannie (FNM) … now government-owned.
• Morgan Stanley (MS) and Goldman Sachs (GS)… their legs cut out from under them.
• Washington Mutual (WM)… their grave is being dug at this very moment.

All in the last 3 weeks… And now we have a new moratorium on short selling… as well as a brand-new scapegoat.

It’s Getting Dicey Out There…

Banks are no longer doing what they need to do… lend money. Instead, they’re filing for chapter 11, or waiting out the storm and hoping to come out alive.

In fact, yesterday—at a local bank—my colleague’s wife was turned down when she asked to withdraw $20k from their savings account.

“$3,000 is all we can let you withdraw today,” she was told by the bank representative.

Still, the Fed, the Treasury and Wall Street would have us believe everything is okay. You see, they’re running a dangerous public relations campaign… called perception. They want the average investor to stay the course, even as the major indices test multi-year lows.

Through a temporary ban on “abusive” short selling of nearly 800 financials—and announcing a plan to absorb toxic debts—the government may only be able to provide a temporary band-aid.

In the end, someone still has to pay back the loans. And you guessed it… it’s you and every other American taxpayer.

Remember When…

• Richard Fuld told us the worse of the crisis is “behind us”?
• Merrill Lynch (MER) CEO John Thain said the subprime crisis was “reasonably well contained”?
• FDIC Chairman Sheila Barr said we’re in the 7^th inning? Or when Morgan Stanley said we’re in the 3^rd inning?
• Morgan Stanley CEO John Mack said the 8^th inning… maybe even top of the 9^th?

Seriously, folks…

The reality is that very little has changed. Further financial market chaos is likely as more banks fold… one by one, like dominoes. And as we near the reset of Option ARMS in 2009, even more havoc will be wreaked.

How about that $85 billion the government drew from thin air to ’save’ AIG?

Well, it’s going to further dilute the existing money supply, making your dollars increasingly worthless. And in the months ahead, everything you buy is going to get more expensive… from food and gasoline to medication and health care services.

And if Washington Mutual fails, it’ll need billions from the FDIC to cover depositors.

Let’s face it… we’re a long way from being out of the woods, no matter what we’re told.

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