The S&P and Moody’s downgrades of AIG has happened and it will rapidly push this situation to an end…either an end that prolongs the drama or the end.

If the government cannot find a way to ignore their lack of authority to lend to AIG and wiggle out of their suggestion that they will not make the loans, I do not expect another situation to arrive fast enough that could save AIG.

It is very surprising to me to see S&P and Moody’s make this decision without acceptance or understanding by the Federal Reserve and Treasury.  Therefore, it would not surprise me to see a last minute bailout program that makes all the past financial creativity exhibited by Bernanke and Paulson look basic.  If something like this happens, it will either be a new facility specifically created using some obscure provision in the Fed’s charter or it will just be a giant money laundering process to shove it through an existing conduit, similar to what they did with Bear Stearns on March 14th.

One extreme idea….have some other Central Bank lend directly to AIG.  Sounds crazy…right!?!  AIG is a global corporation doing business in about 100 countries.  If this is a global problem, maybe it is time for a global solution.   If this is solely a US problem, then we are probably screwed.  If our government cannot or will not lend to AIG, then I see no other workable deal.  I am not advocating this or any other solution.  It has not mattered what I think or what I have said.