The Ownership Society, International Edition

Wed, 17 Sep 2008 10:21:59 +0000

In another sad twist on "The Ownership Society," the New York Times reports that the Fed now has warrants for 80% of AIG in exchange for an $85 billion loan. In the ongoing struggle for the soul of Ben Bernanke, "Damned if he does" is leading "Damned if he doesn't" by a score of 3 to 1. In truth, I think the real motivator is this sentence:

Of the $441 billion in credit default swaps that A.I.G. listed at midyear, more than three-quarters were held by European banks.

As with Fannie and Freddie, losing face internationally is just a whole lot worse than losing it within your own borders, particularly if you are a large debtor nation.