Last night, I was meditating on the future, and I came up with this:

The Fed and Treasury (as well as foreign governments) seem intent to do WHATEVER it takes to prop up markets. With housing well above its traditional value of 3x income, that means trying to prop up assets well beyond what would be a healthy market value.

The plan (at least by our government) is to prop up asset prices by injecting liquidity into banks and providing other lending assistance (e.g. the Fed's new plan to provide commercial lending, FHA loans, etc.).

While these actions are likely to provide some encouragement to the markets in the short term, the long-term consequence could possibly be interesting.

If I were head of a big, undercapitalized bank, where would I invest new capital?

Personally, I would:

1) Buy up weaker, discounted banks that don't have the same connections to get new capital. This would add to my reserves at a time when cash is king.

2) Buy good companies and good financial paper that are trading at a big discount but are unlikely to fail.

What I would NOT do is lend to stretched consumers, new businesses, or leveraged companies.

As a result, the likely winners from Fed and Treasury action are large, established companies and banks.

The likely losers are individuals and consumers, small companies, and leveraged companies without good political connections.

A possible result is that there will be a boost to the market at some point, but that the injections of capital may not trickle all the way down. If so, this divided society will become even more divided, as the unconnected believe more and more that the game is rigged and they are being robbed by inflation, unemployment, and other means of their savings and their opportunities.

More importantly to investors, the implications of giving large amounts of capital to a select few to prop up assets is likely to generate distortions in the market and more uneconomic investments. In other words, the Fed will be printing money or the Treasury will be taking on debt but they will use the proceeds for uneconomic investments.

These actions are likely to further shake long-term confidence in markets and the value of financial assets. With less value in financial assets, more value will be placed in tangible assets, which is simply another way for saying the government's actions are more likely to result in inflation than in sustainable economic growth.

Obviously, it is in the interests of a large, leveraged, asset-rich and debt-heavy bank to see inflation, but is it in the interest of the rest of society? Will it really, as Bernanke believes from his studies of the Great Depression, lead to a kick-start of the entire economy? Or will it contribute to more division in this country, less opportunity for the less connected, and will it greatly damage our sacred American Dream of opportunity for all?

This is a great experiment, based on one man's PhD thesis.