Getting ready

Seeking Alpha has pieces to explain the "bail out," another Orwellian use of language. It is a spending spree, not a bail out. In other articles, they recommend SLV, a proxy for silver, a display of the plunging dollar against other currencies (only the beginning), and an argument for long positions in SKF.

SKF is interesting in that it is around 50 and has been  250.  Get this, it is designed to be the double inverse of the financial stocks.  If you think banks are still in trouble (and big ones are being propped up with mirrors), then this is a good play. As Soros said yesterday the financial system crashed in October. The Bush bailout was designed to stop the massive collapse and runs on the bank, but since then, we are just propping up the old houses. [Of course, he is probably shorting the U.S. dollar.]

Anyway, get out of the dollar or into something that will ride inflation.

The conclusion from the selection below:  This also means that the asset side of the balance sheet is potentially "inflated" by almost 75% and the net result could be the most dramatic collapse in a banking system's assets in record history as over $8 trillion in "assets" are reevaluated.

The Core Of The Problem

As the table below tries to capture, the core of the Bail Out problem is reconciling the balance sheet of the banking and thrift system. The biggest concern is the roughly $8.1 trillion in loans currently on the asset side of the equation. The other assets, however, which include $2.8 trillion in securities and $2.5 trillion in other assets, should not be ignored. I point out the loans as this is where the vast majority of the "toxic assets" reside. The real question mark is what is the true value of this $8.1 trillion number as the financial system contracts massively. As has been pointed out, banks have taken only about $1.2 trillion in write downs against these assets.

Is that amount of write downs enough?

Not by a long shot, if one considers the various guarantee and support programs enacted by the Federal Reserve and the Treasury. In a normal world, the Assets, by definition, should equal the Liabilities plus Shareholder Equity. As nobody knows what the true value of the assets really is, the Bail Out support programs are designed to provide the backing to make it seem like the almost $8 trillion in deposits, the core of bank and thrift liabilities, are not "supported" by toxic assets, or "hot air" to use popular jargon.

As presented, the various Bail Out programs now support over 72% of the total liabilities on the balance sheet. The implications of this are staggering: Roubini anticipates the total amount of write downs (in the US) will reach $3.6 trillion, or another $2.4 trillion to go. The revised IMF estimate (which is not the final one by a long shot) estimates $3.1 trillion in total US losses, or another roughly $2 trillion to go. These provisions are optimistic. Why? Because through its various implicit and explicit guarantees the administration is saying the total pain could potentially reach $8.8 trillion. The Fed and Treasury are also providing support for up to 20% of the bank system shareholder equity through TARP preferred stock. As the government has the best information about the true sad state of affairs, it is likely that as more and more information about the weakness of the financial system comes to light, more of these support guarantees will become utilized to their full extent.

This also means that the asset side of the balance sheet is potentially "inflated" by almost 75% and the net result could be the most dramatic collapse in a banking system's assets in record history as over $8 trillion in "assets" are reevaluated.