Sarah Palin and US Treasuries trading Swaps PLUS?

The other day I was confronted with two disturbing situations. I don't necessarily believe they are related, but I did observe them on the same day which may or may not be a coincidence.

First of all, there was John McCain on the stump for his Senate seat welcoming the Sarah Palin in support of his campaign. Now this is the same Sarah Palin who singlehandly lost him the presidential election and from whom he distanced himself during and after the campaign. Now he is praising her as a great American who(m) he was proud to have bolstering his campaign? I mean damn, what on earth was he thinking? He is adding gravitas to a hockey mom who has her sights on the presidency! Does he really want Sarah "I can see Russia from my house" Palin to be one of the most powerful people in the world?!

The second observation was less eye-catching and certainly less likely to stir as much emotion as Ms Palin, but it is equally disturbing. For the first time in over 30years US Treasuries are trading cheap to swaps.

OK, generally speaking swap spreads represent the relative credit of a group of banks that pool together and every day at 11:00 GMT post LIBOR. Again, under normal conditions banks are viewed as a higher credit risk than the "risk free" rate represented by the government. So government debt under normal circumstances as a function of their yield and swap spreads trade at Swaps minus a spread. Last Friday they traded at Swaps PLUS a spread. This is perverse.

The US (and UK)Government have underwritten the banks and transferred large chunks of toxic assets to the tax payers. The result of this is that ASW spreads have imploded. By socialising the losses of banks by insuring them the stress has been transferred to the governments who are forced to issue unprecedented quantities of bonds to finance the underwriting of banks. So now the government as insurer of the banks thereby "saving" the financial system has become a credit risk itself!

Now, as I mentioned these two situations were first observed (by me) on the same day. My question is are Treasuries trading Swaps plus because of concerns about issuance, or are they trading Swaps plus reflecting the fear that any nation that could seriously consider Sarah Palin as presidential quality is doomed to failure?