Fed Chair Ben Bernanke always likes to remind us that he is a scholar of the Great Depression. But I am not sure he has drawn the right lessons from it based on his actions. As Mark Twain said, history doesn't repeat itself but sometimes it rhymes. There are certain rhymes between the Great Depression and the current circumstance. Income inequality and negative savings rates leading up to the current circumstance are the same as they were in 1929. In both situations, high levels of borrowing and lack of transparency were key contributors.

But things are also different now. For example, securitization is at the core of the current catastrophe and so is the globally-interconnected nature of the financial system. There are $13 trillion worth of mortgage backed securities (MBS) and collateralized debt obligations (CDOs) alone and there is perhaps $340 billion worth of capital on the books of leading financial institutions (FIs).

And due to the global interconnections, banks in Germany were wiped out since they bought too much of this financial toxic waste. And this does not even take into account the $54 trillion credit default swap market – which did not exist in 1929.

While intoning somberly about how the global financial markets would collapse absent its wipe out of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) common and preferred shareholders, the Treasury has gotten a very slim payoff from its latest weekend bailout plan. To be sure, mortgage rates have fallen almost four-tenths of a percent and the value of mortgage-backed securities (MBS) may rise.

But is it worth all the pain? Investors in their 1.6 billion common shares have lost tens of billions of dollars in shareholder wealth ($139 billion off their peak prices), preferred shareholders will take $30 billion worth of write-offs, and the taxpayer will be on the hook for somewhere between $200 billion and $800 billion. BusinessWeek reports that "the banking industry [is expected] to collectively write down $25 billion to $30 billion on their balance sheets for losses on the preferred shares they are holding."

These banks will experience a decline in their capital ratios which could put some in peril. "There are 12 banks and thrifts that would lose 5% or more of tangible capital were they to take a 100% aftertax, mark-to-market adjustment on their GSE preferreds," writes BusinessWeek. It reports that three banks in particular will fall below minimum "well capitalized" levels -- Gateway Financial Holdings (NASDAQ: GBTS), Midwest Banc Holdings (NASDAQ: MBHI), and Cascade Financial (NASDAQ: CASB).

June 30 was the day when Thornburg Mortgage Inc. (NYSE: TMA) had hoped to complete at least 90% of its preferred stock repurchase as part of a last ditch effort to save the company from bankruptcy and return it to viability. CEO Larry Goldstone continues to state that bankruptcy is not an option.

Well, when the stock has lost 99% of its value, the company posted a $3 billion quarterly loss, no one will buy what you have to sell, shareholders who have lost just about everything don't want to play anymore, and Moody's handed the company a C (for crap) rating.

Bankruptcy looks like a realistic scenario. And just to keep things interesting, the SEC is investigating the company's 2007 financial results, the timing of margin calls, as well as accounting practices for the company's mortgage-backed securities.

Thornburg's problems have nothing to do with the sub-prime mortgage debacle, at least not directly. Thornburg specializes in jumbo mortgages to those with impeccable credit. Its default rate is the envy of the mortgage industry. So the problem is not creditworthiness, but liquidity. Investors simply are not interested in purchasing mortgage-backed securities of whatever quality in the secondary market.

Thornburg's latest last ditch effort calls for the company to purchase 90% of its preferred stock in exchange for $5 and 3.5 shares of common stock for each share of preferred stock. Shareholders recently gave the company permission to increase the number of shares outstanding from 500 million to four billion in order to make the tender offer possible. The deadline for tendering preferred shares has been extended to September 30. The stock is currently trading at $0.22 per share, way down from its 52 week high of $27.82.

Even a contrarian speculator will have to work very hard to find value in this one.

Bloomberg News reports that HSBC Holdings Plc (NYSE: HBC), Europe's largest bank, has decided to rescue its own $45 billion worth of Structured Investment Vehicles (SIVs). HSBC's plan lowers the odds that Hank Paulson's Super SIV plan to rescue the $320 billion SIV industry -- whose values Fitch reports have declined to 70% of their stated worth -- will succeed. The implications for Citigroup Inc.'s (NYSE: C) $80 billion worth of SIVs are also potentially scary.

Specifically, HSBC will sell bonds to finance the purchase of two SIVs -- Cullinan Finance Ltd. and Asscher Finance Ltd -- taking on their $45 billion worth of mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs). By August 2008, HSBC expects to provide the new company that buys the SIVs' assets with $35 billion worth of funding and loan facilities, thus removing the risk of a forced sale of the SIVs' assets because of declines in the net asset values. HSBC says, however, that investors will still bear the losses stemming from defaults in the underlying assets.

It seems to me that HSBC's move could have an impact on the Super SIV intended to bail out Citigroup. By encouraging the prompt sale of the SIVs, CDOs and MBSs, HSBC could provide a model that others may follow. If successful, HSBC's approach could supersede the Super SIV plan. I'd prefer to see the banks bail themselves out, rather than relying on the government.

MarketWatch reports that General Electric Co.'s (NYSE: GE) General Electric Asset Management (GEAM) Trust Enhanced Cash Fund will offer investors the option to redeem holdings at 96 cents on the dollar. I wonder whether this will look like a relatively good deal when we look back on the problems that money market funds are likely to experience due to their exposure to asset-backed securities (ABSs).

The GEAM fund sustained losses due to mortgage-backed securities (MBS) investments and has already let institutional investors exit the fund. No word on the terms these investors received, but if they had other business dealings with GE, I would be very surprised if they got out below 96 cents on the dollar. Meanwhile, GE plans to withdraw $250 million of its own money from the fund.

As I posted yesterday, GEAM is far from the only money market fund in trouble due to investing in MBSs. One thing's clear -- those who get out first will be better off than the small fry that wait until the end to try to redeem their money from these uninsured funds.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns GE stock.

In August I posted on the danger that subprime mortgages pose to people who invest in money market funds. Today, the New York Times reports that several such funds have invested in commercial paper (CP) issued by Structured Investment Vehicles (SIVs) backed by subprime mortgage-backed securities (MBSs). I think all money market funds should start a public information campaign to let people know if they have the SIV virus and if so, what they're doing to protect their customers from it.

Earlier, I posted on all the new vocabulary words I've learned in the last year thanks to the subprime mortgage meltdown. This $1.3 trillion market consists of mortgages to people who can't afford to repay in many cases. Forty seven percent of the loans were made without documentation of the borrower's income -- these are known as liar loans. The subprime mortgages were packaged as MBSs and among the buyers were SIVs -- off-balance sheet entities that use a bank's good credit rating to issue CP to invest in MBSs.

Thanks to the subprime mortgage meltdown, the CP is not worth as much as before so the money market funds that bought it are now forced to break the $1 per share constant value or put money into the fund to make up for the lost value. So far, analysts say that most SIV securities are trading at 97 to 98 cents on the dollar. But if more SIVs are forced to unwind, the resulting fire sale would put pressure on prices.

Hank Paulson and Ben Bernanke are finally getting around to admitting that the subprime problem is not "contained." Regrettably, their grudging admission of reality also comes with a price -- they are unwilling to offer a solution to a problem whose magnitude they cannot even count.

This is the scariest part. According to the New York Times, at a speech in New York last night Bernanke said, "I'd like to know what those damn things are worth. Until investors are confident in their evaluations, they are not going to be willing to fund these vehicles."

This spring, Paulson and Bernanke were singing the same hymn: "subprime is contained." The reasons? The administration's trademark combination of religion -- the desire to avoid a "moral hazard" -- coupled with incompetence -- a lack of awareness of the magnitude of the problem or how to solve it. Moral hazard is a concept I happen to agree with -- investors should get the benefits and pay the costs of their risky bets rather than asking the government to bail them out of their mistakes.

This morning UBS AG (NYSE: UBS) said it expects a loss of up to $690 million while Citigroup (NYSE: C) said it expects a 60% decline in profit -- but still managed to expect a profit. The difference? European banks like UBS were only marginally brighter than the poor U.S. subprime mortgage borrowers because they actually fell for the line that packages of subprime mortgages were safe, high yielding investments.

It's worth remembering that the mortgage industry value network is complex. No longer does a mortgage bank issue a mortgage and keep it on its books. What happens now is that a mortgage broker convinces a borrower to sign a mortgage contract. The originating mortgage bank then turns around and sells that mortgage to a Wall Street investment bank that packages the mortgage into a mortgage-backed security (MBS) which it quickly gets off its books -- and onto those of European and Asian investors, like UBS, which are now paying the price for their gullibility.

How big of a price? UBS is taking a $690 million loss and firing 1,500 workers due to the $3.4 billion writedown of the value of its MBSs -- but I think it's curious that it still has $19 billion of MBSs with which it is "comfortable." Meanwhile Citigroup's problems are more complex -- it will take $1.4 billion in pretax write-downs on leveraged buyouts it is helping to finance, $1.3 billion in pretax losses on subprime MBSs and $600 million in pretax losses on fixed-income trading.

Citigroup looks like a better diversified sucker. While Citigroup took pain from its MBSs, it also suffered from LBO loan writedowns. Nevertheless, Citigroup looks like it will stay in profitable territory.

But with its shares down 16% in 2007, its performance is nothing to cheer about.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares and has no financial interest in UBS.