Bailout of AIG

Recent news running endlessly on the wire announces the latest bailout of AIG.

Just to be clear, taking a look at the shareholder equity, it becomes blatantly obvious that this is more of a bailout of AIG's counterparties than AIG itself, or its shareholders. The government obviously feels they need to do this because of what happened when they allowed Lehman to go down. The government would have us believe that not injecting this capital into AIG's counterparties would indeed mean the demise of the American economy!

This begs the question of the whole "systemic risk" bandwagon that everyone in Washington & the Fed has jumped on. Keep in mind with Timmy boy now moving to the Treasury, there is hardly any difference between the Fed and the Treasury (regarding economic policy), Bernanke ofcourse having been Timmy's superior at the Fed.

Free market capitalism, the very thing that made America great in its early years, has to be allowed to clean up this mess. If capitalism has created this mess, then capitalism can also clean up what it created. Yes it would be painful. Yes the S&P would probably be below the 575 support level, but the recovery would be a lot faster - perhaps a V or a slanted V shaped recession/depression. The governments action is going to make this an L-shaped downturn, heading towards stagnation which will almost certainly morph into stagflation over the long term.

The whole point of capitalism is that NO-ONE is too big to fail. If you take risks and they pay off, great, here is your market share. If they don't pay off, too bad, here is your Chapter 11 application. I'll tell you what, I'll call your $700/hour lawyers myself and tell them you cannot afford them anymore.