The Fed has pumped $2 trillion into the banking sector and housing market over the last year and a half (see the Bailout Scorecard) to keep the banks running smoothly and to jump start the housing market.  These initiatives are unsustainable and will fail.  It may be next month or it may be next year.  But the Fed is running out of weapons in its arsenal.  The housing market will crash again, and when it does, we'll be in a new financial crisis.  Banks will cut off lending, businesses and people will panic.  The politicians will demand action.  And the Treasury and Fed will relaunch their 'scare the s**t out of them strategy' that worked so well last time: if we don't take immediate multi-trillion dollar action right now, there will be economic Armageddon.

Here's my response: I'll take Armageddon.

The bailout so far totals nearly $2 trillion in aid and guarantees to banks and housing market support.  Here is an accounting of all the main bailout programs, along with the possible potential loss of each.  If the housing market falls modestly, the taxpayer stands to lose at least $1.1 trillion, not just from the bailout funds, but from losses from government mortgage guarantees.

Arianna Huffington, Rob Johnson and colleagues recently created the "Move Your Money" campaign (moveyourmoney.info), the idea of which is to encourage people to move their money from the big banks into smaller, healthier banks, in an effort to stabilize the financial system.   It's a really clever idea, and certainly the right thing to do, given that it takes power away from the 'Too Big to Fail' zombies.  The campaign is coupled with a video montage from "It's a Wonderful Life," the Jimmy Stewart movie about how he saves his local building-and-loan from a big bank that comes in to the community and nearly destroys it.  Unfortunately, however, the campaign is only a short term fix to a deeper underlying problem: the moral hazard of FDIC insurance.

Too Big To Fail by Andrew Ross Sorkin is a fascinating and intricate play-by-play account of the events leading up to the Economic Crisis of 2008, culminating in the Credit Crisis in September, from the perspective of the leaders of all the big banks and government officials. The book is so richly detailed that it reads almost like fiction. One gets to know the personalities of all the main players, with their strengths and quirks, and experiences the roller coaster emotional atmosphere as this group of people creates history in the face of crisis.