It's like a bad positive-feedback loop. The government backstop of Citi made it the de facto response to any major bank in trouble. B of A knew exactly what they were doing. Take a risk on Merrill and if anything goes wrong the government will have to bail them out.

The big disaster here is the misuse of the TARP funds. Paulson, instead of buying preferred shares, should've purchased the bad assets off the books of these banks to ease the uncertainty around their needed capital levels. Instead we've wiped out shareholders and the banks are in no better position today. now the second round is going to be carved up more than the thanksgiving turkey and banks are going to still be in the same tenuous position as before.