Why We Have To Do AIG

AIG may be the most unpopular bailout ever. With Wall Street. With Main Street. With the people. Probably even with the President.

Yet it is absolutely essential. Here is why.

AIG created a ton of what I call Confederate Money. They insured crap that was then called gold. When the gold turned back into crap AIG, the world's largest insurance company, was effectively destroyed.

But AIG was an American company, which did all this under cover of American law. The Bush Administration allowed our national credibility to be placed on the line by AIG. And everyone came to the feast, including a whole bunch of countries we can't afford to see fail. Eastern European countries, which placed big bets on big shitpile and will go belly-up unless those bets are at least made whole.

Would you like to see Estonia, Romania and Hungary back at the mercy of Mother Russia? That's what the bailout of AIG is preventing.

The AIG bailout is embracing and extending the Treasury Bond bubble that began to develop as the big banks failed last year. The U.S. can now borrow money for practically nothing, and that bubble will roll on for as long as we hold up our end.

AIG is a big part of our end. Lose AIG and the Treasury Bubble bursts. That's the other reason to save AIG.

What AIG is doing is preventing the "deep liquidity" the markets keep talking about from moving out of Treasuries into something like, well, stocks. That's bad. But unfortunately it's necessary.

Can the Treasury Secretary at least admit to these hard truths? No, he can't. For one thing they're the province of the Secretary of State, and of the President. For his part all Geithner can do is say that the "world trading system" depends on AIG and take the political bullet. Unless foreclosures can be slowed, his own credibility will be destroyed by this.

But it has to be done. We have to prevent a new Cold War. 

I know Republicans don't care. They would love a new Cold War. It would excuse all the excesses of the last 20 years and bring more. I know Jim Cramer doesn't care. "Do something for investors," he whines, by which he means give his friends on Wall Street the bailout. But his friends are going to have to find their own way -- that's what they pride themselves on anyway.

What has happened in the last week is that the stock market has been decoupled from the real situation. What's at stake is bigger, even, than the economy. If the President can trade Czech and Polish "Star Wars" batteries that will never work anyway for Russian cooperation on Iran, along with the investment necessary to get Russian energy production growing again, it's the deal of the century.

If he can't, because Eastern Europe collapses under the weight of AIG defaults, progress will never come.

So, sorry everybody. Barack Obama didn't start the fire. He's the guy who has to put it out.

That starts with AIG. The full faith and credit of the United States are now being exerted on AIG's behalf. We'll never get that money back, even by selling out the profitable pieces of AIG, but if we keep Europe together it's a wise investment.