This post from Calculated Risk has this chart. Give it a good look. That line can’t go straight up for long without consequences.

You probably already know that the bail out failed to pass and why it failed. But if you have been living under a rock, read this post by Naked Capitalism. Read the comments. They will make you sick. Take this one for example…

There is simply a segment of the population that does not know better or does not care about the economic well-being of their families or other families. Whether for reasons for morality (what is caused by “debt” cannot be saved by “debt”) or schedenfreude or ignorance or indifference,…The house republicans are the voice for this segment…somehow they have to be bribed or cajoled or coerced into going along…otherwise, in the words of one of America’s greatest leaders, “this suckers going down…”.

The real divide over this issue is not between Republicans or Democrats. Rather it it is between the coastal elites who have had it good for many years and the poor blue collar suckers who have been watching their living standards stagnate for those same years. I have seen blue collar folk who never cared much for politics getting in touch with their representatives over this bail out. They simply can’t understand why none of the industries that they depended on were worth a bail out, but people who earned a hundred times what they make are being bailed out right and left.

But the white collar people with big money tied up in the markets are frothing at the mouth. They would shoot their own grandma to get this thing passed. The only reason they can see for people to oppose this bill is stupidity and ignorance. And that is a shooting offense when their money is at stake.

As usual, those with money are going to win in the end, but it is going leave a bad taste for a long time.

From Spiegel comes this interview with Germany’s finance minister…

SPIEGEL: And is the United States completely to blame?

Steinbrück: The source and focus of the problems are clearly in the United States. There are many causes. After 9/11, a great deal of cheap money was tossed into the market. Apparently some of that money went to people with poor creditworthiness. This led to the growth of the real estate bubble. The banks embarked on a race over profit margins. Then speculation spun completely out of control…

SPIEGEL: …which also benefited German banks for a while.

Steinbrück: But they didn’t invent these transactions. The stokers on the financial markets were responsible for that.

SPIEGEL: And how is the US patient doing now?

Steinbrück: It’s in the ICU with pneumonia. This means that here in Europe, we can at least expect to get a bad cold. The US patient lacked legislation, a regulatory framework that could have helped avoid this development. That’s the key issue for me. The financial products became more and more complex, but the rules and safeguards didn’t change. I don’t know anyone in New York or London who would have asked for a stronger regulatory framework 18 months ago. They were always saying: The market regulates everything. What a historic mistake!

SPIEGEL: Your US counterpart, Treasury Secretary Henry Paulson, began by essentially nationalizing the two US mortgage giants, Fannie Mae and Freddie Mac. But then he allowed investment bank Lehman Brothers to plunge in bankruptcy before saving the insurance giant AIG with an $85 billion (€58 billion) bailout. This doesn’t exactly look like a clear course of action.

Steinbrück: In the case of Lehman, the US government wanted to send a signal to the market that they are not prepared to offer a bailout under any circumstances. In the case of AIG, we had direct talks at the G7 level and implored them to stabilize the situation. An AIG bankruptcy would have triggered shock waves around the world. We were all staring into the abyss at that point.

I have to laugh when I read stuff like this. It is like the people in the US blaming Saudi Arabia for all the evils in the world. Granted, Saudi Arabian money funds a lot of Islamic extremists, but it is the western (and in particular the US’s) addiction to oil that makes them rich.

If it was so obvious that stronger regulation was needed why didn’t German regulators stop German banks from buying the crap? Most of the biggest buyers of US crap were banks owned by the German government. Furthermore, any government that allows a mere 6 billion euros of equity to support a 400 billion euro balance sheet does not have alot of room to talk trash.

I doubt I will find this as funny when a billion plus Chinese decide that their economic problems are all America’s fault.

A British Bank called Bradford & Bingley has gone down. From The Telegraph…

B&B’s £24 billion of savings and its 200 branches is likely be sold to a rival or rivals. Spain’s Santander, which owns Abbey and is in the process of buying Alliance & Leicester, was in talks about possibly taking over deposits and branches, an industry source said.

But rivals are reluctant to take ownership of B&B’s book of £41 billion pounds of mortgages – representing 3.4 percent of UK mortgages – as many of them are higher risk buy-to-let and self-certified, which have a far higher chance of defaulting. More than eight out of ten of B&B’s mortgages are either buy-to-let or self-certified.

Hypo bank in Germany has big problems. From Naked Capitalism….

The prospect of an almost-as-big-as-Lehman bankruptcy evidently focused the mind of the officialdom. The providers are private firms, but one imagines, a la the LTCM rescue, that they were given a big prod by regulators It appears the amount of the facility is sufficient to refund maturing paper, but likely falls short of the end of troubles for this highly geared bank (a mere 6 billion euros of equity supporting a 400 billion euro balance sheet).

Fortis Bank (which is based in Belgium) has big problems. As Spiegel Reports….

The news came one day after the Dutch, Belgian and Luxembourg governments announced an €11.2 billion bailout of troubled Fortis bank, which saw a partial nationalization of the company. Fortis is Belgium’s largest bank, and the government in Brussels is providing €4.7 billion for a 49 percent stake in the company’s Belgian operations. Luxembourg is providing €2.5 billion for 49 percent of Fortis Bank Luxembourg, and the Dutch are investing €4 billion for 49 percent of Fortis Holding Netherlands.

From the Washington Post….

Gasoline shortages hit towns across the southeastern United States this week, sparking panic buying, long lines and high prices at stations from the small towns of northeast Alabama to Charlotte in the wake of Hurricanes Gustav and Ike.

In Atlanta, half of the gasoline stations were closed, according to AAA, which said the supply disruptions had taken place along two major petroleum product pipelines that have operated well below capacity since the hurricanes knocked offshore oil production and several refineries out of service along the Gulf of Mexico.

Drivers in Charlotte reported lines with as many as 60 cars waiting to fill up late Wednesday night, and a community college in Asheville, N.C., where most of the 25,000 students commute, canceled classes and closed down Wednesday afternoon for the rest of the week. Shortages also hit Nashville, Knoxville and Spartanburg, S.C., AAA said.

Terrance Bragg, a chef in Charlotte, made it to work only because his grandfather drove from a town an hour away with a 5-gallon plastic container of fuel for him. Three of his co-workers called and said they couldn’t make it.

“I drove past nine or ten gasoline stations that were out of gas,” Bragg said. “I had my GPS up looking for any gas in the area, from the mom-and-pop places to the corporate gas stations. Nothing. They were all taped off.”

Liz Clasen-Kelly, associate director of a homeless assistance center in Charlotte, took the bus to work yesterday. On Wednesday night, she and her husband checked five stations that had no gas, passed a long line backed up onto the interstate highway and chose not to wait at an open gas station with 50 to 60 cars still lined up after 11 p.m.

From Forbes…

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

H/T Naked Capitalism

From the FDIC press release…

JPMorgan Chase acquired the banking operations of Washington Mutual Bank in a transaction facilitated by the Federal Deposit Insurance Corporation. All depositors are fully protected and there will be no cost to the Deposit Insurance Fund.

“For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks,” said FDIC Chairman Sheila C. Bair. “For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning.”

JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired.

This turned out a lot better then most people feared. The FDIC actually made money on this deal. But those who held shares or who had bonds from Washington Mutual were wiped out.

From the New York Times….

According to The A.P.Thursday, in the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to “blow it up” by withdrawing her party’s support for the package over what Ms. Pelosi derided as a Republican betrayal.

“I didn’t know you were Catholic,” Ms. Pelosi said, a wry reference to Mr. Paulson’s kneeling, according to someone who observed the exchange. She went on: “It’s not me blowing this up, it’s the Republicans.”

Mr. Paulson sighed. “I know. I know.”

Why all the fear? I think the London Banker’s idea is plausible. He says…

The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed – only emphasise the urgency.

The Fed can always print money on a grand scale. But if it does this, the international funding that the US needs will stop. Thus, the Fed is limited in a very real way. And it is burning through its current balance sheet at a terribly fast pace. As Brad Setser says…

In the last two weeks — if I am reading the Federal Reserves’ balance sheet data correctly — the Fed has:

Increased “other loans” to the financial system by around $230 billion (from $23.56b to $262.34b);

Increased its “other assets” by about $80b (from $98.67b to $183.89b);

Increased the securities it lends out to dealers by $60b (from $117.3b to $190.5b);

That works out to the provision of something like $370b of credit to the financial system in a two week period. That may be a bit too high: the outstanding stock of repos felll by $40b (from $126b to $ 86b), leaving a $330b net change in these line items. But that is still enormous.

He sums this all up by saying…

This is a very real crisis. The Fed’s balance tells a story of extraordinary stress. I never would have expected to see the Fed lend out these kinds of sums over such a short-period.

But the question remains, is taping the world’s already quite generous central banks for another 700 billion dollars in funding really an option? The assumption behind the Paulson plan is that will not raise the interest rates the Federal government has to pay. But this is a dubious hope.