With all the bailout money circulating through the system, the U.S. government is fundamentally altering notions of competition. Mainly, companies that are receiving bailout funds are finding themselves with a distinct competitive advantage.

The Wall Street Journal (subscription required) reports that "Since the onset of the financial crisis nine months ago, the government has become the nation's biggest mortgage lender, guaranteed nearly $3 trillion in money-market mutual-fund assets, commandeered and restructured two car companies, taken equity stakes in nearly 600 banks, lent more than $300 billion to blue-chip companies, supported the life-insurance industry and become a credit source for buyers of cars, tractors and even weapons for hunting ... Increasingly, companies big and small are competing on the basis of their ability to tap government money."

There has been discussion of the possibility of suspension of the "Mark-to-Market" accounting rule. This has contributed to the current euphoria surrounding financial stocks. The logic is that this would stop the death spiral in the capital base of many of the banks and other financial companies, an action that is at the root cause of our current financial crisis.

A suspension of "Mark-to-Market" accounting would definitely give breathing room to banks. However, there are other alternatives, such as suspending financial regulatory requirements, which could have the same effect.

More of the details of the so-called stress test is seeping out into the public. And combined with more information about the next round of taxpayer investment in zombie banks, the picture is ugly. To get lending going again, it would be better to create new banks. And to clean up toxic waste, we could let the FDIC buy the bad loans out of mortgage-backed securities.

The stress test involves calculating the change in a bank's tangible common equity -- what's left over after selling a bank's assets and then paying off its liabilities under two scenarios. The base case scenario is that GDP falls 2% in 2009, unemployment rises to 8.4% and home prices plunge 14%. And the "adverse" scenario assumes GDP slumps 3.3% in 2009, unemployment climbs to 8.9%, and home prices tumble 22%.

Since last October, I have been repeatedly suggesting that the U.S. would be better off creating new banks rather than putting capital into zombie banks -- whose financial toxic waste prevents them from lending. This is the fifth time I have made the suggestion -- I previously posted on it here, here, here, and here. Until today, I had no idea whether anyone was listening. Now I have a hunch that at least one person might have gotten wind of the idea -- maybe he listened to this radio interview last month on KCRW.

That one person is none other than Paul Romer, an economist at Stanford's Institute for Economic Policy Research. Yesterday Romer wrote in the Wall Street Journal that the U.S. needs banks that can lend and that it would be easier for that to happen if we put TARP money into new banks rather than trying to use the money to revive the zombie ones.