And I wasn’t alone: Congress struggled with the decision as well, resulting in initial non-passage of TARP, and an immediate nasty sell-off in equities worldwide. Politicians, of course, don’t like to see their constituents’ assets get crushed - so a new TARP was cobbled together, one that was 400 pages long and contained a provision that escaped my initial analysis.

The CPP, or Capital Purchase Program, allowed the Treasury to make direct capital injections into an initial 9 “chosen” financial institutions via preferred stock and equity warrants (there are now 8, since Merrill Lynch (MER) has been forced into the waiting arms of Bank of America (BAC), which, incidentally, is planning to lay off 12% of its entire workforce).

So, according to TARP, the money was supposed to buy securities from banks that were priced too high and would be held by you and I until the market “normalized,” whatever that means. Instead, we now own the preferred shares of banks at interest rates I don’t agree with. That’s not a free market.

No Soup for Me - Please!

As if the Fed and Treasury hadn’t committed enough capital to bailouts, the FDIC caused further disruption to the free market came in the form of the FDIC’s TGLP (Temporary Liquidity Guarantee Program).

According to the FDIC’s website:

"TGLP guarantees newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and provides full coverage of non-interest bearing deposit transaction accounts… The goal of the TLGP is to decrease the cost of bank funding so that bank lending to consumers and businesses will normalize. The industry funded program does not rely on the taxpayer or the deposit insurance fund to achieve its goals."

To which I say: Hogwash. This bit of the Blob allows the under-capitalized FDIC to extend credit to under-capitalized banks at absurdly low rates. The FDIC currently lists 171 “troubled banks” among the 8,000 or so that they guarantee.

In fact, just this past Friday, the FDIC seized Sanderson Bank of Sanderson, Texas and Haven Trust Bank of Duluth, Georgia. The Blob just ate tens of billions more dollars in 3% bonds issued by banks whose bonds otherwise trade in the “free market” at closer to 10%.

The reason that the Blob and other investors are willing to accept 3% for a FDIC/US Treasury-backed bond, while bonds that trade without the Blob’s influence change hands at 10%, is because the 10% bonds trade on their own merit. The Treasury seems to have decided to encourage banks to lend at lower interest rates to borrowers with lower credit ratings - again.

If this isn’t sickening enough, the FHA/VA is doing the same thing: FHA borrowers are being encouraged to refinance without documentation and without appraisals (even without termite inspections) via the FHA’s Streamline Program (Streamline FHA Program).

It seems that Fannie and Freddie, now part of the Blob, are considering jumping on the bandwagon and allowing folks to refinance without an appraisal as well.

Call me a cynic - but aren’t we encouraging the banking and financing system (at least what is left of it) to start the whole process of poor lending all over again? Since I own my proportionate share of the Blob sitting in the middle of the financial system, shouldn’t I have a say in what happens to my hard-earned cash? In a free market, I suppose I would - but this is no longer a free market.

25 banks have now failed this year, with the latest failures costing a cool $200 million or so. The FDIC is so remarkably under-capitalized, another $250 billion must be thrown at the program just so lousy banks can get cheap financing to make questionable loans. Significantly, those 171 “troubled banks” have tens of billions of dollars of assets at risk. No wonder the FDIC has been absorbed by the Blob as well. What a country.