Now that the government has taken over AIG and given the rotten institution a $85 billion loan, I’ll repeat what I said back in February, when the government first started to try to shore up firms that have insured bad debts in an attempt to forestall the day when the whole house of cards falls. This time, they took the full plunge with AIG, as the New York Times reports:

What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s role as an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted. It meant A.I.G. was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe.

If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with A.I.G. securities, could have been hurt, too. And some insurance policy holders were worried, even though they have some protections.

That’s the rational explanation, though the Wall Street Journal also pegs the bailout to a desire to protect money market money market funds. (I find this explanation less credible, though even more worrisome if true.)

Indeed, on Tuesday the $62 billion Primary Fund from the Reserve, a New York money-market firm, said it “broke the buck” — that is, its net asset value fell below the $1-a-share level that funds like this must maintain. Breaking the buck is an extremely rare occurrence. The fund was pinched by investments in bonds issued by now collapsing Lehman Brothers.

Money-market funds are supposed to be among the safest investments available. No fund in the $3.6 trillion money-market industry has lost money since 1994, when Orange County, Calif., went bankrupt. A number of money-market funds own securities issued by AIG. The firm is also a big insurer of some money-market instruments.

AIG’s financial crisis intensified Monday night when its credit rating was downgraded, forcing it to post $14.5 billion in collateral. The insurer has far more than that in assets that it could sell, but it could not get the cash quickly enough to satisfy the collateral demands. That explains the interest in obtaining a bridge loan to carry it through. AIG’s board approved the rescue Tuesday night.

The Fed, the Treasury, Congress, insurance regulators, bank regulators, company representatives… everyone is behaving like Jerome Kerviel, the French trader, who hid his giant losses from himself and his bosses by constantly creating false counter-trades that would hide the losses. Eventually, the ruse failed and Kerviel’s $7 billion losses came to light.

And when the band-aid comes off the “fix” of AIG, we’ll be paying again and again in coming months and years, whether in higher taxes, or inflation or indebtedness to third world creditors.

We are all Jerome Kerviel now.

Versus six weeks ago, the phrase “Since the great depression” now has 1524 mentions in Google news and (still) 588,000 in Google search. (Time for a new indexing?)

Looking at Google trends, searches for “recession” are trending up and “bailout” has made a huge spike since the beginning of the year.

“In the week ending Sept. 6, the advance figure for seasonally adjusted initial claims was 445,000, a decrease of 6,000 from the previous week’s revised figure of 451,000. The 4-week moving average was 440,000, an increase of 250 from the previous week’s revised average of 439,750.”

There’s an interesting pattern here. Almost every week there’s a decline, but it’s always a decline from the previous week’s “revised figure.” The telling number is the 4-week moving average, which keeps edging ever higher even with the weekly “declines.”

Last night we went to see Man on Wire, the movie about Philippe Petit, the guy who tightrope walked between the two towers of the World Trade Center in 1974. It’s a stunning, sad, funny, inspiring, nostalgic tribute to the WTC, NYC and Petit and his accomplices.

The movie is more understated than the trailer… but it gives some sense of the spectacle.

“Man on Wire” were the words written on Petit’s booking form in the field for “infraction.”

Drudge has yet to link to swirling reports, including on Andrew Sullivan and Wonkette, that Sarah Palin’s husband’s ex-business partner made emergency filing for a seal on his divorce papers.

Update: here’s the docket chronology.

Update: Drudge was right to pass: no smoke, no fire.

The last week has seen a huge surge in traffic on political blogs. DailyKos, which six months ago was doing 12 million impressions a month is now doing 20 million impressions a week. And Wonkette , which does 4 million impressions some months, did nearly 800,000 impressions last Friday. (Turns out Wonkette has been watching a little known Alaskan politician for two years.) Here is Wonkette’s recent traffic.

Reading a VC salivate about the fact that some social media CPMs are $15 and headed to $17 — “I think that $15 CPMs with no content creation costs sound pretty good to me!” makes me laugh.

Do a little math and you’ll see that the reality is just not there. Google’s Youtube, according to a recent Forbes article, is now doing 1 billion views a day on and should garner roughly $200 million in sales this year.

That’s a $00.0006 CPM.

John McCain deserves credit for turning the ’08 race upside down by putting Sarah Palin in a position to be just a heart-beat away from leading the free-world.

Having said that, as a small business owner, I’m appalled by reports that McCain only interviewed Palin once.

At our company, even interns — folks who will work for us maybe 10 or 20 hours a week and make $12 an hour — get interviewed at least eight separate times over the course of six to eight weeks. I interview each possible intern hire at least twice myself.

Why invest so much time even on junior staffers? Because staff are 99% of a business. We know that even the most junior person may one day take on a senior role. (I first worked with Miklos Gaspar, who co-founded Pressflex and today runs our Budapest office, in 1994 when he was an intern in a business I managed.)

In taking so much time and effort to vet potential junior hires, we’re not focusing on our immediate needs. We know that diligent up front vetting is the smartest investment we can make in the future. Not every person we hire works out, but we vastly increase our odds of success with scrupulous hiring.

Does the USA not deserve at least the same level of due diligence that we apply to interns for a possible future president?

One interview — if that’s what happened — wasn’t bold. It was reckless.

In today’s Washington Post, Howard Kurtz wrote that

Bloggers on the left and right increasingly drive media coverage by turning up the volume on questions until they are difficult to ignore. Sometimes they are right, as when they questioned what CBS’s Dan Rather said were National Guard documents in a 2004 report on President Bush’s military service that led to Rather’s ouster as the network’s anchor.

He could have amplified his point by adding, “Or drove Senate Majority Leader Trent Lott from office for praising the racist presidential campaign of Jesse Helms” or “Unseated Senator George Allen for calling a videographer ‘macaca.'” Unfortunately he went on to cover the “on the other hand” angle, by citing mistakes made by staffers for the New Republic and National Review… two old media organizations.

Lots of sweating and long hours by my programming colleagues got us over the hump this weekend with server and software upgrades. Whew!