Wall Street Journal


has an

explaining that AIG has gotten back several billion dollars in collateral it posted last year against losses in the credit-default swap market.

But, most of the "bad" contracts, which now look not-so-bad, were "closed out" by the government bailout, meaning that AIG lost that money forever, which means that the taxpayers have lost that money forever, which means that AIG's counterparties have gained that money forever.

As the



This is confirmation of the double payment I predicted last year in

. The banks and insurance companies created "money" out of lesser paper. Someone was bound to lose, but when the shit hit the fan, the U.S. Treasury stepped in with taxpayer's money and paid off all the drunken gamblers at face value.

The whole deal reminds me of a mini scandal I witnessed nearly 20 years ago in Connecticut. Big gambling interests had besieged the state capital in an effort to get permission to open a casino. The casinos employed the usual secret enticements, and one little detail emerged, years after the fact, when a powerful Democratic Town Committee chairman (and state convention center authority board member) named Frank Aieta got sued for about half a million dollars, which he had lost at the gambling tables in Atlantic City.

Aieta was a classic machine politician. He was self-employed, claimed to earn mid- or high five figures, invested (disastrously) in a real-estate scam. And though he tooled around in a Jaguar, there was nothing in his lifestyle to suggest he could come up with half a mil. So how did he lose so much?

As one of the casinos' lawyers explained it to me, the casino had extended Aieta credit, which Aieta promptly blew at the tables. If he had won, presumably, they would have paid him real money. But he lost, so they sued him to get their money back.

But here's the key part: The casinos didn't really "lose" $500,000. They only extended $500,000 in credit, a "marker." What they lent him was plastic chips. Their actual losses amounted to a couple hours' pay to a couple dealers and/or croupiers.

Although Aieta eventually filed for bankruptcy, the $500,000 in dispute had never actually existed.

It's the same thing with these credit-default contracts. Each one multiplies the amount of money theoretically in play (the "notional value") without creating anything of actual value.


The real value only comes when the dealin's done. And, in the case of AIG, Goldman Sachs, et. al., it mostly comes from you, working a job, paying your taxes.

Thank God they saved the "system," right?