Here’s a working theory (that is, I’m not an insider, and this theory isn’t fully fleshed-out or researched): Hank Paulson is a Goldman guy — he was a Goldman Sachs CEO along with former government guys like Robert Rubin (now at Citi) and John Snow, who were both treasury secretaries.
Paulson seized the Fed’s purse-strings (by Bush’s will) from Bernanke, who’s mainly an academic. Paulson opened up the Fed to protect the big institutions. Money is pouring out of the Fed now. It added $70 billion in reserves just today. The story is not that the US is turning socialist by bailing out Fannie Mae and Freddie Mac. The story is that executives are being propped up and being allowed to exit with their money while shareholders get screwed. FNM and FRE are worthless, as are Bear Stearns and Lehman, in terms of common stock.
The upside for the big banks, like JP Morgan (who bought Bear Stearns on the cheap), Bank of America (who snatched up Merrill Lynch), and Goldman Sachs (a feeder for the government), is that they eliminate their main competition and get assets on fire sale.
Meanwhile the news is concerned about poor finance guys in Manhattan losing their jobs, and the government turning into a communist state with state-owned banks. Keep in mind that Wall Street guys earn six-to-seven figure salaries, and Bush is as anti-socialism as you can get.
Mark Cuban, who’s turned into a tool, is correct in his assessment of banks’ executives:
“If you run a major hedge fund or fund of any kind, once you have put enough cash in the bank to get to your “F U Money Level” there is absolutely no reason not to throw the Hail Mary pass and make high risk investments every chance you get.”
The main story is not being told.