Welcome Back Moral Hazard

CNBC’s David Faber is reporting that AIG will likely receive a federal bridge loan of between $85 billion and $90 billion, in order to prevent the insurance giant from going bankrupt. I wonder if they’re also going to throw in some frozen steaks for Dick Fuld, because this is yet another punch in the face to Lehman Brothers.

Barry Ritholtz wrote the following yesterday, and it is both prescient and depressing:

Don’t just risk your company, risk the entire world of Finance. Modest incompetence is insufficient — if you merely destroy your own company, you won’t get rescued. You have to threaten to bring down the entire global financial system. The fear and disruption caused by a Bear collapse is why it was saved. (AIG has the right idea on this).

That’s the big lesson, and I can guarantee that the next dying financial firm — and there will be more than one — is hearing it loud and clear tonight.