Blundering herd.

The federal government is floating a plan to consolidate troubled assets into a "bad bank." It may have already created one. On Sept. 15, the day Lehman Brothers collapsed, Bank of America announced its rescue of Merrill Lynch. Desperate to keep another Wall Street titan from toppling, Washington played not-so-silent partner, sweetening the deal with $25 billion of TARP funds. This month it shoveled in another $20 billion, along with $118 billion in loan guarantees.

But all those billions can't stanch the bleeding: shares of Bank of America have fallen 85 percent since the acquisition was announced, costing shareholders $250 billion. As the deal closed, Merrill chairman John Thain was busy passing out $25 million in parting gifts from the office he had recently redecorated. When your bank is on the skids, it might be wise to forego that $87,783 area rug, $68,178 credenza, and $1,404 trashcan, but Thain actually came in under his $1.8 million budget. He's since been pink-slipped, but not before logging a $15.3 billion fourth-quarter loss undisclosed to investors before the deal was sealed. (Conveniently, Thain was skiing in Vail when Bank of America's bosses got the bad news.)

While other lenders were going bust, BoA could go shopping because it had largely resisted the subprime lure. But in short order, it scooped up troubled Countrywide and made this rash play for Merrill. "We could have rolled the dice and possibly got it at a cheaper price," Bank of America CEO Ken Lewis said at the time of the takeover--not exactly music to shareholders' ears. "But we thought the long-term benefits were so overwhelming and such a strategic opportunity that we elected not to roll the dice."

Since then the benefits have all but evaporated, but the overwhelming part remains. With a little nudge from nervous Uncle Sam, it's amazing how fast you can pile up bad paper.