Tuesday, March 3, 2009

Propping Up Versus Fixing

“We had no choice” but to prop up AIG, said Fed Chairman Bernanke (foxnews.com/politics, 3/3/09), as the government dumped another $30 billion into the insurance giant, bringing the taxpayer onus to over $200 billion so far on just that one black hole.

He is right, sickening though it is. And more billions will be probably be needed. The trouble is that AIG insures against default of credit-backed securities for dozens of banks worldwide. If AIG defaulted on its insurance contracts, all those banks would collapse and we would indeed be back to The Great Depression.

So why not fix the problem rather than continual “propping up”? What we do NOT need is a Potemkin banking system.

Whatever happened to the plan for the government to buy the toxic assets? Whatever happened to the “bad bank” strategy? Where the hell is Geithner? I’m starting to get the sinking feeling that nobody is in charge.

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