this is a story of arrogance and greed, and it illustrates how fragile the entire global financial system. one small unit of aig (not even an insurance unit) wrote credit default swaps, which are basically insurance on bonds, which took down the entire company. then aig had to rescued, or its collapse would have taken down everthing else.

this is what i mean by arrogance, a quote from joseph cassano, an aig executive. that was in august 2007, just one year ago.

“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”

since then aig has lost a lot more than one dollar. but while aig was considered too big to fail, lehman was not. then lehman's bad paper held by so many others caused the primary fund to fail. a money market fund, which was supposed to be safe, had invested in lehman obligations, and had 60% redemptions in 2 days. in these internet days, that's the modern equivalent of a bank run, only at super speed.

once the primary fund broke the buck, that triggered a run on all money market funds, so a week ago thursday paulson had to step in and guarantee all money market funds, or the dow would have opened at 8300, according to the last week's new york post article. these are dangerous times to be in the stock market, so cash is the safest place to be, but it won't protect you from inflation when the currency is being debased by one huge bailout after another.

gold and silver bullion will do that, but they are becoming harder to find as everyone is starting to figure that out. but once the physical and paper markets realign at much higher levels, the stronger mining stocks like sso will rally sharply. that is just my opinion, but the story in the link is all factual.

http://www.nytimes.com/2008/09/28/bu...