Taxpayers are bailing out AIG!

So, it looks like government officials are deciding to take a 80% interest in AIG, the nation’s largest insurer valued at about $85,000,000,000,000.00. Looking at these numbers it makes sense why the Fed or Treasury were unwilling to lend a helping hand to Lehman. They had to make a decision… if we can’t save em both who will rock the world’s financial markets more, AIG or LEH? The verdict is out and the 85 billion dollar answer is AIG. Do I have a problem that the taxpayer is now on the hook for another unknown sum of liabilities? Heck, at this point it is Monopoly money right?

AIG will pledge their $1.1 trillion in assets in collateral for the “loan”. What happens if their liabilities are greater than their assets? Doesn’t that mean they are bankrupt. Oh wait they are being supported… with money created out of thin air because last I checked we don’t have any surplus cash sitting around, quite the contrary.

Downgraded
After many talks to have private industry help AIG with their problems it came down to the USG. Once AIG’s rating was downgraded their ability to raise capital was further hampered. I sure wouldn’t want to lend them money. There are way too many unknowns with their sales of CDS – Credit Default Swaps and sub prime mortgage-backed securities holdings.

Lender of last resort
Had the government not stepped in tomorrow would be extraordinary in comparison to last Monday. I actually had a dream the other night about the Dow dropping over 1000 points. Perhaps this latest intervention will prevent that in the short-term. However, for the longer-term all this does is prolong the continued de-leveraging in the credit markets. Is there a possibility of a soft-landing as people like to say? Perhaps, but if so it is going to mean a serious about of liquidity introduced into the markets. We know what that means… the devaluation of the greenback.

The market will prevail, the dollar will fall
At the end of the day the Fed will probably resume its monetary inflation as prices continue to fall due to a recession. Unless I have been hard of hearing there is much fear in the air and it is growing. Excesses will need to be cleaned out, and it is going to be a matter of when. The how is fairly obvious as the tornado of destruction is just getting going. Paulson pushed the matter of Freddie and Fannie to the next Presidency, while the present administration tries to ride off into the sunset with their ego’s left in tact.

Let the carnage continue… Who’s next? Washington Mutual (WaMu)? Wachovia (WB)? THE US DOLLAR!