Bad and worse news: The buck broken and AIG bailed out

OK, the bad news first: The dollar has fallen below its $1 par value in money markets due to the tanking of Lehman Brothers this week. It was worth 97 cents Tuesday evening when it was announced that Reserve Primary Fund had to write off debt it held that had been issued by Lehman. I recommend reading this primer by diarist “mikeypaw” at DailyKos about the “broken buck” if this doesn’t make sense to you.

What does this mean to us, apart from messing with the value of our 401K and other holdings that sweep funds in and out or money market accounts? The value of the dollar will likely fall somewhat in trading in other markets, making imported products more expensive. Since we don’t make much here any longer, that means a large swath of everything we buy will cost more. Hello, inflation.

It also means that American goods will seem less expensive to buyers overseas; it could be an opportunity for the few remaining manufacturers here in the United States, although demand could be restrained by the spread of recession around the globe.

And now for the worse news: American International Group was bailed out by the U.S. government on Tuesday evening, to the tune of $85 billion. For the amount of this two-year loan, we the people now own just shy of 80 percent of AIG.  The loan allows AIG to slowly wind off assets to raise cash and pay off its debt, rather than being forced into rapid liquidation that would likely cause a collapse of financial markets here and abroad.

Inside the last week we as the U.S. government have now become both the biggest mortgage guarantor with the takeover of Fannie Mae and Freddie Mac, and now the largest insurer of mortgages with our ownership interest in AIG.

We’re talking about some serious money.

Billions and trillions.

I don’t know about you, but I can’t even wrap my head around that degree of rapid nationalization.