AIG again

How about a real stress test?

So here come another $30 billion for AIG -- but when you take a good, hard look, it's not for AIG. Who is it for? Nobody at AIG, nor in the Obama administration, is being especially transparent about that.

AIG lost $62 billion last quarter, and without another bailout would have had to default on its "obligations" to banks all over the world. Without the bailout, that is, all the idiotic credit default swaps AIG issued would be worthless, and banks all over the world would have to write down a load of bad paper. To wit, the Treasury continues to animate zombies -- not just in the United States, but everywhere else as well.

Naturally, this can't be the last bailout. As AIG continues to pay out claims on credit default swaps, it will continue to hemorrhage money, and Treasury will continue to cough up the vast sums needed to keep it alive -- but, do American taxpayers really want to bail out banks in the UK and Switzerland? How about the France and Germany? How about China?

At the risk of boring anybody who actually reads this blog on a regular basis, I will lay out my AIG prescription yet again. Split the company into it's four component divisions, and take the finance division into bankruptcy -- that is, default on all those credit default swaps. That will leave the "insured" derivatives worth whatever they really are worth. That's a real stress test.

Bailing out our own mismanaged banks is bad enough. We really can't afford to bail out the world.