I am speaking of Washington’s grand plan to repair two decades of asinine economic policies (and the inevitable foolhardy speculations that resulted from those policies).

When Paulson’s cabal first pitched us on the grand bailout, they claimed that it would “only” take $700 billion or so. And they promised to be fair, even-handed and transparent in how they managed this largesse.

Not a Gravy Train?

“This is no gravy train for rich guys who screwed up,” they assured us. “We’re just going to buy up a few of these ‘distressed bonds.’ In the end, it won’t even cost you money. Heck, we might even turn a profit selling them later!”

They even managed to say it with a straight face.

What they didn’t tell you was that the Fed had already lent the banks some $2 trillion dollars. And you know what? They still would rather not admit this mind-boggling giveaway. They don’t want to talk about who got the money. Nor do they wish to discuss what kind of crappy assets were put up as collateral.

When queried as to just where the trillions went, neither the lame-duck Bush administration nor the incoming Obama administration offered more than a stern “no comment.” Bloomberg has filed a Freedom of Information lawsuit that may someday bear fruit.

But don’t hold your breath.

Distressed Assets Are Just So, Well, Distressing

In the meantime, the Grand Cabal has become bored with mere “distressed assets.” Within hours of receiving permission to buy those icky bonds, it confessed that they were unpriceable after all. Instead, Washington would simply buy stakes in all the banks.

And what if you didn’t screw up and put your particular bank over the barrel with worthless subprime bonds and mutant debt swaps? What if you acted like a respectable grownup banker, instead of some kind of cocaine-maddened 24-year old derivatives trader, and kept your depositors’ and investors’ needs front and center?

In that case: Tough luck, Chuck!

The Cabal is in charge now, pal, and everyone has to toe the line… or get left out in the cold forever more.

It’s a Recession After All — Who Knew?

As if that weren’t enough, there’s more: After being warned for over a year that the real economy was suffering as much as (if not more than) their friends on Wall Street, Bernanke, Paulson, et al, finally noticed that we might just be in a real recession.

Real people were having a hell of time buying groceries. And real businesses were firing workers willy-nilly. What’s more, they didn’t stop when Washington bought up the banks!

What an outrage!

Just Buy It All!

So now it seems we’re going to have to find a way to bail just about everyone out. GMAC Financial Services (GJM: NYSE) – once General Motors’ sole profit center – wants to be redefined as a bank so that it can qualify for a piece of the pie.

Not to be outdone, American Express (AXP: NYSE) is begging for a modest $3.5 billion too, lest it come undone from the stress of failing sales and skyrocketing defaults.

(I must confess that I have participated in pushing this doddering gray lady of the credit world to the curb. I tore up my card when they transferred their service bureau to Bangalore.)

Furthermore, insurance outfits like MetLife (MET: NYSE) and Allstate (ALL: NYSE) are drooling over American International Group’s (AIG: NYSE) new terms. Remember that $80 billion we “loaned” them? Well furgedaboudit, because we will in all probability never get a penny back – and more is going down the hatch.

GM Puts Six Million Workers On the Line

Oh, and speaking of GM, they have very publicly announced that if they don’t get a very large piece of the action, they will simply shut their doors – throwing an additional 266,000 workers onto the breadlines.

(That is roughly the number of full time workers at GM. Some analysts claim that after adding in all the folks who cling to GM’s mighty sides, the real figure is somewhere between 3 and 6 million!)

No doubt Ford and Chrysler are watching closely, prepared to scream, “Me too!” at the drop of a hat. If Washington does bail out the automakers (and I believe that they will), there is every likelihood that they will shaft both shareholders and bondholders in the process.

(For those who are interested in capitalizing on this particularly horrid storyline, Bryan Bottarelli and I have offered WaveStrength Options Weekly readers an option straddle that ought to capture some 15%-40% gains regardless of what Washington does for the automakers.)

Heck, even the National Marine Manufacturers Association has dispatched a delegation to Washington, to find out if its members qualify for a place in the “grand gravy train” that this wasn’t supposed to turn into.

A Bill No One Could Possibly Manage

So why not just bail them all out? Why not just cut a billion-dollar check right now for each and every deadbeat and sad sack who was not prepared for “the sudden downturn” that has been clearly coming for over a decade?

Try this on for size: our current annual GDP is estimated at some $14 trillion and falling. Over the past six months we have already given away some $2.5 trillion. And with the cost of running the rest of government, not to mention a couple of grueling wars, we are out another $10 trillion or so.

When the rest of the world sees spending like this (i.e. the folks who buy our bonds and fund it all), they shrink back in horror. Word is already circulating around the global finance community that the danger of default may even cause the U.S. to lose its triple-A credit rating.

If this happens, we would have to double or triple (at least) the bribes we pay out to entice bond sales. Our already skyrocketing deficit (currently somewhere in the vicinity of $10 trillion) would further expand geometrically.

Simply put: There ain’t enough dough in world to save every deadbeat. The charitable impulse is nice enough. But it simply cannot be done.

Adam Lass, Senior Editor, WaveStrength Options Weekly

Source: All Aboard the Grand Gravy Train

This from Today’s Financial News:

If you thought lending in the home-mortgage lending industry was tight, you will be shocked by the woes in the auto-lending world. This subprime debacle is destroying one company after the other.

Just this morning, GMAC (NYSE:GJM) announced it has stopped issuing car loans in seven European countries. October 31 will be the last day for folks from Finland, Norway, Greece, the Czech Republic, Portugal, Spain, and Slovakia to get loans from General Motor’s (NYSE:GM) finance arm. The news proves the desperate situation the entire industry is in.

This is far from the first news we have heard from the gigantic lender. GMAC recently announced it was drastically raising its lending standards and its borrowing rates. Now, if you are going to get a loan from the company you are going to pay an exorbitant price and you had better have squeaky-clean credit.

Spreading the pain

It is the same situation across the auto-loan industry. Look at companies like AmeriCredit Corp (NYSE:ACF), United PanAm Financial (NASDAQ:UPFC) and Consumer Portfolio Services (NASDAQ:CPSS). These companies have given their shareholders terrible nightmares over the past twelve months.

Just yesterday, AmeriCredit took its investors for a wild ride as share price tumbled by over 50% at one point during the trading day. Shares hit five-year lows as Wall Street dealt with the very real chance this company may have some liquidity issues capable of dealing a death blow.

As the economy turns sour, AmeriCredit, and its large stance in the subprime auto-lending industry, may not have the cash it needs to pay its future obligations. For instance, the company has a $2.5 billion payment due early next year that it has no idea how to deal with.

With its credit losses piling up higher and higher, the company’s chances of finding the cash to ensure the multi-billion dollar check will not bounce are getting smaller by the day. Right now, it has just $244 million in reserves.

With news like that, it is hard to believe share price has found the support that it has. Look for more price drops over the next few weeks.

For options investors, AmeriCredit offers some profit potential. While options are fairly expensive across the board, this company’s impending doom gives put buyers and call sellers a chance to make some money. Options with a January expiration are looking particularly appetizing, especially for sellers.

With fewer folks willing to re-purchase the debt of companies in the auto-financing industry, the future will be tight. GMAC has a shot at success thanks to help from the Federal Reserve and the multiple life preservers it has tossed into the stormy sea. But for smaller companies like AmeriCredit, Consumer Portfolios Services, and United PanAm, the good times may be permanently over.

As these companies struggle, there will be plenty of investing opportunities. Pay attention to their actions and you can win no matter which way the industry moves.

Source: Look out below: AmeriCredit (ACF) and GMAC (GJM) are falling fast