Bourbon & Bayonets

WALL STREET THANKSGIVING

As Americans this week sat down to their traditional Thanksgiving dinner, the real feast was once again being enjoyed by the Wall Street elite. Citigroup received a heaping helping of government aid from the world's two most famous turkeys – Bailout Ben Bernanke and Handout Hank Paulson.

The US government is now guaranteeing over $300 billion worth of Citi's loans. It is obvious what will happen next on the road to Bailoutville, USA. Next will be a literal stampede of all the other American financial turkeys looking for a similarly juicy deal from Uncle Sam. By the way, do turkeys stampede like cattle or do they simply go into full panic mode?

Every other bank from Bank of America on down will be racing toward the government trough, like the greedy animals that they are, looking for Uncle Sam to guarantee all of their “turkey” loans. Although instead of oinks, we will hear “me too”! Let us not forget also all of those companies, such as Goldman Sachs and American Express, that have turned themselves into “banks” so they can also feed at the government trough.

The cost of the bailout of the American financial system is already approaching $8 trillion. I would not be surprised to see that number climb easily tenfold. Which brings me back to the subject I have discussed in previous articles - the US Treasury market.

Right now the US Treasury market is sucking up all of the remaining American capital the way a fire sucks up all of the surrounding oxygen. Such fires always leave behind them nothing but charred ruins and destruction of all life in the area for many years to come. That is what will happen here. First, crowd in all the remaining American capital into the US bond market and then burn it up.

That capital will catch fire and burn in 2009 as Wall Street comes to the stark realization that the key foreign capital that is needed to fund the ongoing trillion dollar plus US deficits will remain in their home countries taking care of their own economic problems and not bailing out the US.

It's simple human nature. If there were a fire and you could save either only your own family or your neighbor, whom would you save? Obviously 99.99% of people would save their own family first. Wall Street is making foolish huge bets otherwise.