[Bitwhacker]

Here is the easiest-to-understand explanation of why the bailout is needed, and in NewsWeak of all places:

The Monster That Ate Wall Street

Money quote from the article:

“What the bankers hit on was a sort of insurance policy: a third party would assume the risk of the debt going sour, and in exchange would receive regular payments from the bank, similar to insurance premiums. JPMorgan would then get to remove the risk from its books and free up the reserves. The scheme was called a ‘credit default swap’,...”

AIG had over $400 billion in these CDSs and miscaclulated on what the losses would be. And since AIG is a Dow component, it's failure was taking the stock market down and causing a run on banks and money markets...that's why they couldn't let AIG fail...;-))

[Molly Pitcher]

Thanks Bit. One thing ur friend the economist told us last night was the Fed’s temp loans to banks have skyrocketed the past year or so:very concerning.

[jtill]

Thanks, Bit. That’s a great article. In fact I stole it and sent it on to some friends.

Amazing what kind of chaos you can create with a little imagination and suckers to work with.