"fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work"

Speaking of AIG, the Washington Post questions the bailout:

"A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.

The Treasury Department leapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bailout loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility."

One can certainly question the terms, which, although considered onerous, I believe should have been tougher, given the iffy nature of their outstanding investments. In other words, we've no idea of the actual cost. It's not wise to write an open check.

"What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said. "This is to fill holes in companies' balance sheets, and they're trying to hold at bay the charges that our financial system is insolvent."

The deal that the Treasury and the Federal Reserve Bank of New York pressed upon AIG was intended to stop any domino effect of financial institutions falling because of their business ties to AIG. The rescue allowed AIG to provide cash to huge banks and other players who had invested in rapidly souring mortgages insured by the company."

The cascade effect was certainly the issue.

"Early this year, investors had begun privately demanding that AIG pay off its billion-dollar guarantees. But in mid-September, when the demands for cash reached a public crescendo, AIG had to admit that it didn't have enough cash on hand to meet the obligations.

In the first weeks of its federal rescue, AIG has used the loan money to post collateral demanded by these firms, sources close to those deals say."

Lack of capital is the problem here.

"No one else benefits," former AIG chief executive and major shareholder Maurice R. "Hank" Greenberg wrote to AIG's current chief executive on Thursday. "Unless there is immediate change to the structure of the Federal loan, the American taxpayer will likely suffer a significant financial loss."

Another concern is that in this depressed market, AIG, and the taxpayers that now own 80 percent of the company, will lose coming and going.

The company may be forced to borrow additional federal funds for rising payouts to counterparties. Neither the government nor AIG is releasing information about the specific amounts paid to individual firms, but numerous credit experts say that the value of those mortgage assets is probably declining every week. That means AIG has to pay a higher price as part of its guarantees."

Okay. The iffy number keeps increasing. One example: As a house's value declines, the CDS would have to possibly pay more out when it's foreclosed or sold.

"AIG's Financial Products division is the primary villain in the company's free-fall. It made tens of billions of disastrously bad bets on mortgage investments but may not have carefully hedged those bets or properly estimated its risk. The company's rapid burn of $90 billion also suggests that it grossly undervalued its obligations to counterparties in a worst-case scenario."

This is the division I called AIG Crap.

"But AIG's external accountants warned that it was they who alerted management to the dispute, not AIG Financial Products, and that the division was not properly considering the market in its pricing.

Rutledge warns that because there has been no public disclosure of AIG's payments to counterparties, it is impossible to know whether the pricing it is using now is proper.

The Federal Reserve and its advisers have acknowledged privately that things are not going according to plan."

"If the company had filed for Chapter 11 bankruptcy protection, AIG could have frozen the crippling collateral calls, and shareholders would have had a chance at recovering some value from the company's 80 percent drop in stock price from earlier this year, said Lee Wolosky, a lawyer for AIG's largest shareholder, Starr International.

"AIG is nothing more than a pass-through being charged 14 percent interest," Wolosky said. "Company assets are eroding on a daily basis; asset sales have not begun and can only be at fire-sale prices in the current market. "

Here come the 'ifs'.

"But David Schiff of Schiff's Insurance Observer said he could not see how bankruptcy would have been a better solution.

"The point isn't to save AIG; it's to save the U.S. financial system. I think they were afraid to find out who else goes under if you let AIG fail," he said. "But right now, no one knows if this is going to work."

Well, there's the problem. Here, I'm a cock-eyed optimist. Not about AIG, but about saving the financial system.