Monday, March 2, 2009

The AIG lesson

The one lesson that is crystal clear, is that our Government will take on more and more suspect debt, and more and more obligations of suspect companies.

If, as we are lead to believe, that the European banks would have solvency issues if AIG 's swaps would not be honored, it means that the European banks can hardly prolonging the inevitable, and the eventual ramifications of these deals will be felt on our bonds and our currency.

Because if these banks were hedging with AIG, and we know that AIG's guarantee was worthless without our Government backing, then who else did they hedge with that wasn't backstopped?

If our Government is ready to take Citi's dreck, and they are more than willing to take AIG's dreck, then why don't they take everybody else's dreck?

And if, in fact, they are the only bidder, the market will hit the bid.

Too big to fail eventually will lead to too big to bail.

And that's where Geithner's policies will lead.

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