Note:  There are no sports references in this, unless I decide to talk about GM's dumping Tiger.  The Mailbag is up next.  As always, feel free to email me with your questions at Eric.Rudin@gmail.com.  Happy Turkey Day to everyone.

So there's a lot of talk these days about bailouts, mainly because there's a new one announced every other day.  The latest to get the Get Out of Jail Free card was Citigroup.  Just add them to the list of banks that have already been bailed out or were forced to merge or be acquired, a list too depressing to list in full.  By my count, the only true survivors are Bank of America and Wells Fargo with JP Morgan Chase on the periphery.  Now, originally, we were just buying the toxic assets and letting the banks start over.  Now the taxpayers are getting equity in the banks so at least there's a chance someday of recovering our "investments."

Let's start from the beginning.  About 20 years ago, pretty much this exact same crisis happened but to a lesser extent.  The S&L scandal.  So everybody decided that we didn't want our economy to crash and that it probably wasn't a good idea to buy up a bunch of toxic assets and then package them and make money until the bubble burst.  Some may remember the Keating 5 as it was brought up (not often enough in my opinion) during the election mania.  Lo and behold, not more than two decades later, the entire banking industry decided it would be a good idea to try it again.  Clinton started the deregulation train and then Bush took it and ran.  Nobody kept an eye on these people, not Chris Cox (SEC), not the rest of the feds, not the state, nobody. 

The banks reacted to the fallout of the tech bubble by putting all of their eggs in the housing market because it seemed like a good investment.  I mean we're never going to run out of a market for homes and the market was booming.  Why should it stop?  So the banks kept lending to anyone with a pulse on the premise that because their property would go up in value, it didn't matter that the person didn't have a dime in his pocket because the house was paying for itself.  We all know where this went.  The bubble burst as it always does and now we're left to pick up the pieces.  Remember the days of being able to go into a bank and just ask for $50k and they'd give it to you no questions asked?  Now you have to present about 85 forms of ID and sign the loan in blood, mafia style, before they'll even contemplate giving you a dollar. 

I know history repeats itself, but it doesn't usually do so twice in the same generation.  You could have had the same guys making money in both scandals.  Speaking of money, where did all of it go?  Yachts and hookers?  I'm serious.  Where is all of this money?  Why is nobody asking this question?  We're talking about dollars that go into the trillion range.  That's like national debt money.  Who has it?

I know that it's not healthy to look back and depress yourself, and for the sake of the argument I'll assume that we won't be stupid enough to let this happen in the next ten to twenty years.  So let's look at what we've got going on now.  Citizens are getting angry with these bailouts and rightfully so.  This scandal happened because of greed, hubris, and gross negligence.  Have you watched these Congressional hearings?  All of the guys in charge of the securities that got killed said that they had no idea how they were packaged and what the original mortgages were composed of.  What?  Your job is to trade in securities and to manage them but you had no idea how they were compiled?  And you're telling that to Congress?  Ok, I know, we're looking backward again.  This is hard for me.

One more try.  Here's what's going on.  Lots of banks are getting bought up and lots of banks are getting money.  Originally, the fed was going to just buy up the toxic assets without getting equity back in return.  Then Gordon Brown, the British Prime Minister, announced that he was going against the American example with this and buying equity in the banks, in other words, nationalizing a part of the banking industry.  So the next day, our financial wiz team decided to do the same.  Bank by bank has been going to the well for a sip with the latest being Citi, bringing the toll to $800 billion.  We even had a fun fight over Wachovia between Citi and Wells Fargo.  Citi was going to buy Wachovia at $1.00 a share when Wachovia was going down faster than, I don't know, really fast.  Wachovia signed a deal with Citi that they wouldn't negotiate with anybody else for a week.  So what happens?  Wells Fargo comes in, with their extra few days to analyze Wachovia's books, and offers $7.00 a share.  What do you do if you're Wachovia?  You owe a duty to your shareholders (me) to get the best deal possible, but on the other hand you signed an anti-competition deal and the government is facilitating the Citi deal.  Long story short, money talks. 

So the banks got bailed out.  Now the auto industry is coming to the well for a drink.  Bet they're not getting a sip.  People are wondering why.  And if I hear one more reference to Wall Street vs. Main Street, I'm going to puke.  Here's what you must understand.  As much as we hate the d-bags in the $4,000 suits with 8-figure buy outs for their contracts, we can't let their companies go under.  Our economy would crumble and we'd be in a depression.  It's that simple.  The banks went under in the early 30's and you know what, I don't want to wait in bread lines only to hope that a guy like Al Capone is handing out freebies that day.  So we had to bail out the banks even though they were wrong in their actions, or at best grossly negligent.  It was in our own best interests and now we have an equity stake in the banks so it's less of a bailout than we thought.  It may end up being a good investment even though Henry Paulson can't figure out what's going on.  He should be a sports announcer by the way.  He's the new Captain Obvious.  He said that a crisis like this happens twice every hundred years.  Really?  I'm glad he can count to two.  Did he analyze the Roman and ancient Greek economies to come up with that or did he just add this crisis to the Depression?  I'm guessing the latter. 

But I digress.  As to the auto industry, people are wondering why they can't get $25 billion and the reason is that the boys and girls in charge don't see a calamitous effect if the U.S. auto industry goes under.  These companies lose billions of dollars on a consistent basis.  The banks will rebound and make money.  As sad as this sounds, the auto bailout will come down to how much Washington thinks that the loss of 1.6 million jobs will affect our economy and stock markets.  That's it.  Think about our foreign policy.  Even with a liberal guy like Obama in power, we're going to hear about Afghanistan.  But what about the Congo, or Somalia, or Tibet, or . . .  you get where I'm going with this.  We're not going to Africa or East Asia to combat atrocious human rights violations because there's nothing in it for us.  If we gain control the Middle East, we gain control one of the most important natural resources there is.  Now take that thinking to the bailouts.  We're bailing out banks because it keeps us afloat.  We're not bailing out the auto companies because 1.6 million jobs won't affect a 300 million person nation enough for the rest of us to care.  It'll be like every other upsetting event.  It'll be on the cover of the paper for a few days like those elections in Africa and then we'll forget about it entirely.  Only the individuals experiencing the hurt themselves will care.  As a society, are we comfortable with that?  And what does that say about us if we are?