Japan's Turn

And the Nikkei goes berserk, rocketing up a thousand points on Liquidity Mania World Tour '08. It seems the US has let slip details on the bank stock bailout scheme: another quarter trillion sunk directly into banks that includes a three-year guarantee on interbank lending, at last.

The planned equity investments are part of a U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corp. program. As part of the deal, the FDIC will insure all non-interest paying bank deposits and new preferred debt issued by banks. The Treasury will provide a three-year guarantee of bank-to-bank lending.

Further, the Bush administration is expected to formally notify Congress that it intends to use the next $100 billion available to it under the $700 billion market rescue plan passed by Congress earlier this month, according to the source.

Treasury Secretary Henry Paulson met with top Wall Street bankers on Monday to nail down the plan for the government to buy shares in financial firms to restore confidence in rattled markets.

The evolving plan marks a quick about-face for Washington policy-makers, who until recent days had been focusing on building an apparatus to soak up bad assets from banks.

Meanwhile, the Wall Street Journal, citing people familiar with the situation, reported late Monday that the federal government plans to buy preferred equity stakes in nine top banks as part of its effort to battle the financial crisis.

The newspaper did not report how much would be invested in each institution, but said the move is designed to destigmatize government investment.

The overall push by the feds could provide faster relief to a paralyzed banking system and would put the United States more in line with Europe, where governments on Monday pledged billions of dollars to recapitalize banks or guarantee lending.

The nationalization of America's biggest banks will be under way this week. The "nine banks" will certainly include Morgan Stanley and Goldman Sachs, as well as Wells Fargo, Citigroup, and Bank of America 9can't live the biggest banks out of the largesse.) However the interbank lending guarantees that will be announced tomorrow almost certainly portend another huge rally.

Just remember who is paying for all this down the road. We've traded in one set of problems for another, and that "another" is hyper-inflation with the over $2.5 trillion we've dropped in the money system just since September 15.

Those are some big-ass IOUs we get to cover.