Lehman Brothers Version 2.0

I woke up at 3:30 this morning to this frightening thought: They're ALL too big to fail.

Last week GM, Ford and Chrysler begged Congress for a $25 billion loan from taxpayers. All three auto makers are on the verge of bankruptcy and this loan would supposedly help give them some time to turn things around (no one believes that $25 billion is enough, or that they can turns things around anyway).

Something else happened last week. The financial sector (banks and insurance companies) got decimated. Last week alone: Bank of America (down 30% on the week), Citigroup (down 60% on the week), JPMorgan (down 34% on the week), Wells Fargo (down 25% on the week).

Coincidence? I think not. Congress was not impressed with the performance of the big 3 CEO's. Neither was the market. The market is jittery. Lehman Brothers is still fresh on everyones mind. No one wants another Lehman Brothers style bankruptcy, the problem is a General Motors bankruptcy would be orders of magnitude worse.

The notional value of credit default swaps written against a GM bankruptcy is 9 times that for Lehman Brothers. A GM bankruptcy would be 9 times as bad as Lehman's FAIL.

The bottom line: There is no chance in hell that GM will be allowed to file for chapter 11.

The problem: There are countless companies like GM that are now on the verge of bankruptcy or will be in the near future. Rest assured, the players (banks, hedge funds, insurance companies, etc.) in the totally unregulated credit default swap market and other over the counter derivatives market have placed bets on that debt too. However, they wouldn't be able to post collateral in the event of a "too big to fail" failure, and what are the chances that JPMorgan's real world insolvency is allowed to see the light of day? Zero.

So, EVERY ONE OF THEM is too big to fail.

End result: The bailouts will not stop anytime soon. They cannot. We are about to embark on another wave of wild money expansion. Hopefully China et al. will continue to buy our Treasuries.

And hopefully someone has a plan for the hyperinflation that is coming down the track.

We've fucked it up. We've fucked it all up.