Joe Nocera is one of the best business writers out there - a long time writer at Fortune he moved over to the New York Times a few years ago; he writes about 1 article a week but they are excellent, informative reads. Below is a background on what happened to the clusterstock that is AIG in layman's terms - and why we are not near done bailing it out. And essentially how the "financial innovation" of one branch of the business is killing the entire body. Please feel free to print it for your neighbor's who can't be bothered with all this "sophisticated money stuff". Or read it to your children at bedtime - after all it's their paychecks that will be siphoned off for the next 40+ years. It's a grand story of wizards and magic (you'll see)

It also reinforces the thesis that all we are doing by bailing out "AIG" is funneling US taxpayer dollars directly into the banks of Western civilization. (Oct 17: Your Tax Money Paid to Investment Banks and Hedge Funds via AIG) Who knew insurance could be so exciting? Then again who knew auditing could be so exciting, right Arthur Anderson?

Via New York Times

• Next week, perhaps as early as Monday, the American International Group is going to report the largest quarterly loss in history. Rumors suggest it will be around $60 billion, which will affirm, yet again, A.I.G.’s sorry status as the most crippled of all the nation’s wounded financial institutions. The recent quarterly losses suffered by Merrill Lynch and Citigroup — “only” $15.4 billion and $8.3 billion, respectively — pale by comparison.
• At the same time A.I.G. reveals its loss, the federal government is also likely to announce — yet again! — a new plan to save A.I.G., the third since September. So far the government has thrown $150 billion at the company, in loans, investments and equity injections, to keep it afloat. It has softened the terms it set for the original $85 billion loan it made back in September. To ease the pressure even more, the Federal Reserve actually runs a facility that buys toxic assets that A.I.G. had insured. A.I.G. effectively has been nationalized, with the government owning a hair under 80 percent of the stock. (remember our big secret - shhhh... stuff on the Federal Reserve balance sheet is "safe" - it's a magical place called Bentopia where all toxic assets turn into beautiful butterflies - and we'll make a profit off the butterflies someday too)
• Donn Vickrey, who runs the independent research firm Gradient Analytics, predicts that A.I.G. is going to cost taxpayers at least $100 billion more before it finally stabilizes, by which time the company will almost surely have been broken into pieces, with the government owning large chunks of it.
• A quarter of a trillion dollars, if it comes to that, is an astounding amount of money to hand over to one company to prevent it from going bust. Yet the government feels it has no choice: because of A.I.G.’s dubious business practices during the housing bubble it pretty much has the world’s financial system by the throat.

So why is AIG - a single insurance company THAT important? I mean... there are plenty of insurance companies out there.... why is AIG "the chosen"?

• If we let A.I.G. fail, said Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European banks “will face their own capital and liquidity crisis, and we could have a domino effect.” A bailout of A.I.G. is really a bailout of its trading partners — which essentially constitutes the entire Western banking system.