“Well, keep in mind that it is precisely because of the lack of this authority that the AIG situation has gotten worse. Now, understand that AIG’s not a bank, it’s an insurance company. If it were a bank and it had effectively collapsed, then the FDIC could step in, as it does with a whole host of banks -- as it did with IndyMac -- and in a structured way renegotiate contracts, get rid of bad assets, strengthen capital requirements, resell it on the private marketplace.

So we’ve got a regular mechanism whereby we deal with FDIC-insured banks. We don’t have that same capacity with an institution like AIG, and that’s part of the reason why it has proved so problematic.” President Barak H. Obama, March 24, 2009.

That, friends, is what we call a flat-footed lie. B. H. Obama should have known a lot better. Anyone…anyone…familiar in the least with bankruptcy would recognize that what he said was needed by way of “authority” already exists. Federal courts charged with implementing our very well established bankruptcy code use their authority every day to do everything Obama said was needed.

This new Obama lie goes with the now-institutionalized lie that ANY business is “too big to fail”. If a business is too big to fail, it is too big to do business. Because, you see, failure has to be an open option for any business. It has to be one of the ways a business can go, and there can be no special pleading for any business, no special dispensation that keeps it from the consequences of its manager’s decisions. The danger to the economy of even entertaining the idea that a business…for whatever reason…cannot fail is immense. It will fail; the only question is how much it will take with it. The bankruptcy process is designed to limit the collateral damage. The bizarre process we are watching now could take out an entire national economy.

“If [AIG] were a bank and it had effectively collapsed, then the FDIC could step in, as it does with a whole host of banks -- as it did with IndyMac -- and in a structured way renegotiate contracts…” Well, funny thing, that is exactly what happens in a bankruptcy. Some of the contracts…like, say, big fat bonuses…can be completely abrogated. In the case of AIG, that might mean that lots of other financial firms, who had tried to manage their risks with AIG, would be left hanging out. Sorry ‘bout that. That could mean big losses. It could mean that those businesses failed, too. That isn’t a new situation that nobody has ever seen before. Remember Enron? Big outfit. Biggest bankruptcy ever. Lots of ripples in the larger economy, as other businesses were effected or even taken down. Did we survive? Yep. Did you know that there is still an Enron?

“If [AIG] were a bank and it had effectively collapsed, then the FDIC could step in…get rid of bad assets, strengthen capital requirements, resell it on the private marketplace.” Which is what the bankruptcy process does every day. The debtor comes in with their basket of debt, their basket of assets, and hands the tangle to the bankruptcy court. The courts have trustees, who are empowered to sort through the baskets of debts and assets, untangle the mess, and set priorities as to who should be paid what, what has to be dumped, what can be sold in the market, etc. It is a rational, known process that many people understand. It is highly rule-driven. It is even remarkably cooperative, very often.

Which makes it completely different than the Bush/Obama plans out there. They are irrational, mysterious processes (if they are even that), and nobody really understands them. There are no rules. Congress saw to that. There is nothing over which debtors and creditors can cooperate, because the process is political, not economic. If you want something, you have to go on bended knee to Congress. And Congress is clueless, or far worse. Congress is the source of the market distortions that caused the whole stinking housing finance crisis. So, we’re trusting them to make a brand new system to fix the stinking mess they induced?

So, is B. H. Obama stupid, and does not know about the fundamental power of the bankruptcy process? Almost certainly, the answer to that questions is “NO”. So, why are we not exposing AIG…or whoever…to the bankruptcy process to which all business have always been subjected? If we HAVE a process that provides EXACTLY the “authority” Pres. Obama said in his press conference we need…but somehow lack…why is it we are not using it?

My only conclusion is that our President suffers from a form of March madness.