Pricey Intervention Has Failed Miserably

It was March of 2008, one year ago this month, when the government originally stepped in with $29 billion to help bail out Bear Stearns. At the time, it seemed like a large number and a highly unprecedented move. Of course, $29 billion has become little more than a rounding error in the multitrillion dollar socialist coup that s left a large proportion of the financial sector (and the economy in general) firmly in Washington s hands. Backstop became bailout, bailout became control. Now Rep. Barney Frank (D., Mass.) isn t just regulating the banks -- he s running them.

An unfathomable amount of money has been spent along the way. According to data compiled earlier this month by the New York Times, the federal government has committed some $8.8 trillion to fixing the financial crisis, and has spent more than $2 trillion so far.

How much money is that? Consider that the entire market capitalization of the S&P 500 is only around $6.4 trillion dollars, meaning that the government is now on the hook for a sum in excess of the entire stock market and it s already spent more than 30% of that solely just trying to restore confidence.

There is no objective evidence to suggest the intervention has been anything but an unequivocal failure. The only rationale proponents can muster is that, Had we not intervened, things would have been much worse. The S&P 500 is down nearly 45% since that first intervention. How much worse can it get?

The uncertainty continues. Just Friday, Washington unveiled yet another plan to shore up Citigroup (C), converting its already formidable stake in the firm into common shares which promptly fell 39%. AIG (AIG) is poised to receive another $30 billion from TARP funds, and reports are swirling that the Obama administration is considering ways to wait for it bail out distressed auto-parts suppliers like Tenneco (TEN) Inc. and Lear (LEA) .

Government intervention in the market has gone from merely erratic to absurd. No wonder many investors are simply throwing up their hands. As long as Uncle Sam is playing, it s a game they cannot win.

Nowhere to Hide

Stocks have lost ground in 2009, with the Dow and S&P 500 both down nearly 20% in just two months. Yet wealth destruction isn t just reserved for stocks these days. Even bond investors seeking the relative safety of U.S. Treasurys have lost money, with the Merrill Lynch Government Master Index having lost 2.72% in January and 0.36% in February, yielding a year-to-date loss of 3.06%.

Bonds also bombed:

Dow, S&P 500, Nasdaq and ML Government Master Bond Index YTD Monthly Returns

Unhappy with the miniscule returns on money-market funds and anticipating inflation, more investors are betting on higher rates. ProShares UltraShort 20+ (TBT), the exchange-traded fund that corresponds to twice the inverse of the long-term Treasury (essentially a bet on higher interest rates) traded a few thousand shares a day last year. Today? It trades more than five million shares a day.