First of all, I'm not sure at all UAW got as great a deal as some opined (and as I first thought) it to be. If we take the valuation at $10B, 55% recovery of UAW's VEBA's $10B owed by Chrysler doesn't look that good considering it's in stock of a company going into bankruptcy. Even if they got good terms in the current contract, relative to other unions in bankruptcy situations, they've severely handicapped themselves in future contract negotiations: if they play hardball, they'd be killing their own retirement health benefits. The role the administration played in persuading/arm-wrestling UAW to go with this arrangement remains an intriguing question.

Here are some key facts I've gathered that are relevant to what I'm about to say. If you think I got any of them wrong, correction is appreciated.

One unintended consequence of CDS is exactly the disastrous positive feedback. Bond holders with CDS protection would rather push the company into bankruptcy, as demonstrated by Lehman and Chrysler.

It is the "of course" part that I have a problem with. There're two scenarios under which USD will drop, and only one under which USD will remain strong in the intermediate term (a year or two). But even under the last scenario, USD is likely to drop in the longer term.

While it may be futile to predict the timing of bubble burst, it's at least somewhat amusing to imagine how it could take place. So here I go, if only as intellectual masturbation.

2. Sell $1B bond.

3. Spread rumor of the Company's demise. Or better yet, actually run the Company almost into ground. Quickly.

Here's the list (in Billion Yuan, recent CNYUSD exchange rate 6.835):

If you chose the former, you may be doing the responsible thing. But it would also be the stupid thing. Here are the smart things you can do to ensure your prosperity, or survival at the very worst, in this wonderfully morally hazardous world:

What will the next bailout do? Is it going to wipe out common equity? Preferreds? If so, will it be the C-series? S-series? Or will they screw the junior debt? Senior? Or are they going to let it fail? Or maybe they'll just keep on pumping money in?

Yes, China is anything but detached from the rest of the world and indeed has all the major symptoms of the developed world: A housing bubble, bank bad assets, demand destruction, unemployment. But the degree of suffering for China is much less severe in every one of these respects.

No, it's a bit more than rhetorics.

Those who are opposed to government intervention in the banking industry, or anything beyond no-strings-attached handouts anyway, wisely choose the word "nationalization" to describe it. The neutrals go along. But I don't understand why those who are for it fall for such an obvious rhetorical trap.

Recently, and especially Tuesday, we're seeing another proof of the USD and JPY being the carry-trade currencies. It's implausible to argue the recent USD strength has anything to do with safety or even risk aversion, the latter being the usual explanation for carry-trade currency strength. It's more like forced, maybe even panicking, unwind of existing carry trades.

Let's face it. We screwed up by dismantling Glass-Steagall, a lesson learned the hard way during the Great Depression but thrown away when complacency and greed got the better of us. Basel II is a joke. The European model of combined commercial and investment banks creates way too much systemic risk. Heck, people on the two sides don't even like each other. Commercial banks serve too much social function (taking deposits and making loans) to be aggressive profit seekers. They must be closely and prudently managed and regulated. Investment banks (including capital markets), on the other hand, must be aggressive profit seekers and risk takers in order to serve their social function, which is to keep the capital markets somewhat efficient and fair. But institutions playing such a pivotal social role cannot be public.

How could this be, after so many writedowns and bailouts? Since I have no evidence to support or refute them, my only logical choice is to join them.

If you bought deep-out-of-money long-term puts any time after last September, good luck, you probably won't get back to the waterline even if the market goes down 20% from here. Aside from time decay, the implied volatility (VIX) was so hysterically high last October that you have a good chance to lose money even if the market goes your direction.

Libor is coming down. Mortgage rates are coming down. Bond market of all maturities and for all stripes of borrowers has thawed. Prime consumer credit is moving. CDS spreads have come down from hysterical/historical levels, although it's likely never to come back to pre-crisis levels -- before it disappears. There are still a few anomalies remaining in the market, most notably the spread between nominal and inflation-indexed treasuries. But these anomalies are generally understandable and temporary.

There's one unmistakable take-away from the analysis: US government definitely, specifically wanted Lehman to go down. They couldn't prevent the BoA (BAC) and Barclays (BCS) talks of a buy-out, of course. But whenever parties involved in the rescue effort went to them for help, you could almost see the glee in their collective eyes when they said "no". Why is that?

If you think the 40 bps CDS premium on the US is ridiculous (for up to 5 years anyway), then I have a surprise for you. Citi (C) CDS was going for 470 bps last Friday. This is close to imminent default range. It's much worse than the usual junk credit.

I'll take that one step further and say the very notion of "public ownership" has become a farce in modern economy.

Except, the law of risk and reward hardly applies for the last few years. As such, so does the law of supply and demand since the commodities bubble started last year (arguably earlier) and ended a few months ago. If you need any proof, here are two pieces of news, randomly selected sources from a blind Google search (not intending to target the sources in any way), to illustrate my point: