The more this game of bailouts and capital infusions goes on, the more you have to look for simple answers. The biggest banks suddenly reported to be "profitable" in February. Then it was discovered that AIG paid off cds's at full value to them, even though the cds's hadn't yet defaulted and there were no clear indications that they would. This backdoor capitalization of the favored banks is currently being investigated but is being stonewalled at every turn.

On several occasions in the past, I have commented here by referring to the insight of a blogger Ilargi who is brutally honest but prescient in an Orwellian way, IMO. He had something to say about the GSEs today:

Ilargi: We are now in the longest recession since the 1930's, and the US alone has pledged $12.8 trillion in rescues, bail-outs and stimulus plans. And that's by no means the worst of the news. That is that there is no end in sight, no recovery, no solution, nothing at all. Job losses in March were 742.000. I would make the bet that the US will lose over 10 million jobs in 2009.

Sure, there are murkily opaque stats popping up every now and then of "unexpected" rises in mortgage applications or home sales. But those are inevitable the result of one sort of market manipulation or another. In fact, they can be traced back to what is the best hidden, and probably the largest by far, bank bail-out. It goes by the moniker GSE's, behind which we find Fannie Mae and Freddie Mac. If the major banks couldn't sell their mortgage loans to these companies, which are fully funded with your money, no mortgages would be available at all in America. Fannie and Freddie will use at least $340 billion more in taxpayer money before the year is over. After which, they’ll come back for more. ANd they'll bet it, there is no plan B, and that suits the banks just fine.

There is no end in sight to this scheme. Late last year, they were ordered to buy up some $500 billion on mortgage loans per year. The banks close the loans, pocket a hefty fee, and then turn around and dump them on the people. The total combined portfolio's of Fannie and Freddie is now $5 trillion, and they're bleeding cash -your cash- like you wouldn't believe (well, maybe by now you would). Yes, AIG is a disaster, but not nearly as big. And the pattern that emerges should alarm you.

Where does the AIG bail-out cash go? To the major banks. Where do Fannie and Freddie's hundreds of billions end up? At the major banks. The world will tell the US this week that it's had enough of this circus. How much longer will the present bunch of clowns be allowed to remain on stage? The countries found siding with each other on the side of the G20 debate that calls for trillions more in "aid", the US, UK and Japan, are those with the deepest levels of debt and the highest levels of corruption and thievery. The other side is serving them notice that they are not completely lacking in functioning neurons. Obama and Gordon Brown will try to lay the blame with Russia, China, Germany and France, and the American media will feed that line to the public in staccato soundbites interspersed between American Idol and Dancing with the Stars. And it will serve to let the theft continue, all the way till you have nothing left at all. After that, watch out.

(emphasis mine)

Reb, you ask:

It doesn't seem like we are dealing with this crisis "head-on". Why are we not winding down their operations?

The simple, even obvious, answer then is that we (taxpayers) are being, and have been, played for suckers in this endless wealth transfer. I think Congress is only too happy to give Geithner, or anyone else, more regulatory power. They don't want to touch this con-job with a 10 foot pole.

At this point, I don't know what can be done about it. Most people in this country have long ago bought into the "American Exceptionalism" that Andrew Bacevich wrote about. The vast majority of the citizenry is ignorant to economics and monetary/fiscal policies. Add in a MSM that is really a propaganda machine, it is a formula for corporate fascism, a la Simon Johnson's "The Quiet Coup".