It did not take long for the bailout of AIG (AIG) to dissolve into chaos. Just two weeks after the Fed put $85 billion into the failing insurance company, the new management asked for an extra $37.8 billion.

The news is yet another example of how fast the financial system is failing. Institutions which appear to have been saved can walk into more trouble in the course of a few days.

It says very little for AIG management that they misjudged the amount of money that they would need by such a substantial margin. The government will get more security for its new investment. According to the FT, the Fed will "borrow up to $37.8bn in investment-grade, fixed-income securities held in AIG’s securities lending programme and provide AIG with cash collateral."

The federal government has probably got the wrong people operating AIG. Its new CEO, Edward Liddy, used to run AllState (ALL) which has about as much in common with the wrecked AIG as cab driver does with an airline pilot. Liddy may be a nice man, but he has never been in charge during a storm this large He was a fool to take the job and ruin his reputation.The Fed needs to put a team in actuaries in charge. At least they would have a better chance of predicting how bad things are getting.

No one should be surprise if AIG needs more money in a few weeks. The financial markets are falling apart that quickly. But, no one is out in front of the problem. No one is working the doomsday scenario. Until the government and US financial firms plan for the worst, they will keep following the trouble down a rat hole.

Douglas A. McIntyre

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