I was not exaggerating about AIG

AIG is a black hole for taxpayer dollars with no end in sight.  But where did the money go?

To Goldman Sachs and other large banks, of course.  (Including several in Europe, in case you care about that sort of thing.)  Yves has a round-up of the news, including links to the WSJ.

If you are suffering “bail-out fatigue”, I recommend just reading Buiter’s piece.

The reports on the evidence given by the Vice Chairman of the Federal Reserve Board, Don Kohn, to the Senate Banking Committee about the Fed’s role in the government’s rescue of AIG, have left me speechless and weak with rage.

So, like Mr. Kohn,  I too am worried about the knock- on effects in the financial markets of the Fed’s actions.  I, however, am exceedingly worried about the Fed’s bail out (at full face value) of the counterparties of AIG.  I am deeply worried that other people may, as a result of this, be willing to do business with other U.S. financial institutions on the same ludicrous terms that brought us the current crisis.  I why wouldn’t they be happy and relaxed about once again taking wild and crazy bets?  They now know that, should their bets fail, in a crisis like this, there is some sucker-institution in Washington DC that will make sure that they don’t have to take some losses.

I realize there is much in the news to be outraged about these days, but this really is a big one.  It is way past time to get mad.

Aside: I am still traveling and return home Sunday night.  I may or may not still have the last Hugh Hendry episode of Squawk Box Europe on my Tivo…  If not, we will have to make do with CNBC’s own clips.

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