AIG Aftermath

Things are moving quickly now. CNBC and Bloomberg are both reporting there's now a Fannie/Freddie style Fed conservator/takeover bid in the works where the government will end up running AIG.

American International Group may work out some kind of deal with the Federal Reserve to shore up its finances by the end of the day, CNBC has learned.

Under pressure from New York Governor David Paterson and AIG policyholders, the Federal Reserve is considering reversing its decision on Monday and providing some kind of financial aid to the troubled insurer.

Bloomberg reported late Tuesday that the Fed was considering some kind of conservatorship for AIG, which sent the firm's shares down in after-hours trading.

The Fed met with the company's advisers throughout the day and came to a better understanding of what is needed to help the company through its current crisis, people familiar with the negotiations said.

These people said there is hope that a Fed-funded plan could be reached by the day's end.

This goes FAR beyond a bailout. This is the complete Fannie and Freddie package, complete with stockholders getting wiped out as the debt is dumped on them.

As a result AIG is now trading under half of its closing value of $3.75 this afternoon, it's down to $1.80 a share and falling in after hours trading as of 5:30 PM.

If this falls through it's over, but if a conservatorship happens...then what? We've already nationalized the mortgage industry. We're well on the way to nationalizing the investment industry as well...and then the banks themselves are quite possibly next.

This is insanity. You can't buy the entire industry. Observe Bank of America snapping up everything it can get its hands on: it's going for Too Big To Fail. Look for more massive consolidation in the financials.

Today was the ultimate Dead Cat Bounce for the Dow.