The AIG Black Hole

Barry Ritholtz lays out the awful truth about how the AIG bailout is really just bailing out the brand name Wall Street firms who made bad derivative bets. That's where much of our $170 billion or so has gone. In the name of "preventing systemic risk." Maybe there will be a revolution once people really understand what's happened...


Blogger drawnonward said...

Wow - the first tendency is to scream about U.S. dollars flying overseas. But as a student of systems, I have to wonder if bailing out foreign counterparties doesn't, in fact, tend to help the U.S. economy in the long view. After all, our financial markets respond just as negatively to bad news from abroad as domestic "doom and gloom." And a deepening crisis abroad will inexorably reflect back upon U.S. foreign exports and our international credit.

I guess the true test regarding bailout funds going to counterparties (both foreign and domestic) is whether or not there exists more effective methods to apply these funds to address the collapse in the credit market than filtering them through parties with contractual ties to entities such as AIG. And I don't have the smarts to even offer an opinion on that.

Slightly off topic: I fear we may miss an important developing crisis in small business credit by focusing so much on the big players. I'd like to recommend a blog entry on DailyKos entitled The Coming Crash No One Is Talking About. I would be happy to get Matt's take on this.

Even more off topic: Congratulations on a successful launch of The Tyranny of Dead Ideas. I've got my copy.

March 10, 2009 at 1:13 PM  

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