"of course the fed will assist AIG. they are one of the largest swaps counterparties in the world.

who do you think is on the other side of fannie & freddie's interest rate hedges?"

Are you saying that AIG is yet another one "too big to fail"?

What would happen if the Fed would tell AIG to stuff it, get bought or die?

After the Hank Greenberg FIASCO that played out over the past year, AIG is in no position to be anything OTHER than a tearful supplicant to the Fed.

And such tearful supplication DOES NOT mean that the Fed desires their HIGHLY radioactive toxic waste dumped into the pond that is the asset pool of the Fed. Remember Rogoff’s warning. And Rogoff is mainstream Fed buddy buddy.

On the other hand, they are a HUGE market CDS market maker and their situation has ENORMOUS implications for the future of the CDS plumbing.

The continued hubris of AIG is asinine.

Matt Dubuque

I agree 110%. Unbelievable.

J. C. Flowers, meanwhile, is a very valuable contrary indicator. They haven’t been too good at calling bottoms recently…

who do you think is on the other side of fannie & freddie's interest rate hedges?

this is something to behold. paulson & bernanke are such idiots. all they had to do was offer forbearance to the banking system (inc GSE's) and equity capital would have rushed into the system.

instead, they started giving speeches about the need for the financial system to recapitalize itself. as if the owners of the banks were supposed to dilute themselves for the greater good of society instead of shrinking their balance sheet.

if you want banks to lend in a credit crunch, you give them leniency around minimum capital regulations. period. you don't go around giving speeches telegraphing equity raises that have the impact of driving down their stock prices, thereby giving them less incentive to raise equity.

i knew this thing would take an ugly turn for the worst when the lawyers called about the KEY and FITB deals. those companies had strong Tier 1 capital ratios and minimal mortgage exposure. there was no reason for them to be raising capital, except for the fact that the Fed & Treasury dept decided it wanted everyone to increase minimum capital ratios by 200bps.

sheer lunacy. paulson's efforts to 'save' the system are making things worse. it's just like the fed raising rates in 1930 in an attempt to stop the outflow of gold out of the US.

Precious metals respond to the US dollar in the inverse.