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Helicopters Arrive Under Cover Of AIG Testimony

The Administration is running the economic bailout like a war.

While the Congressional testimony of AIG CEO Liddy dominated business news with wall-to-wall media coverage from about 11 am to 7 pm, Bernanke launched his first airstrike on the financial collapse at 2:15 pm yesterday.

The enemy forces? Fear, distrust, and public rage against the financial system. The objective? Quantitative easing: print trillions of dollars - which bankers will have to distribute. The noisy battle against a few million dollars of AIG bonuses has successfully diverted the force of negative public opinion away from the decisive battle: the helicopter drop of a colossal pile of U.S. dollar cash, about 8% of GDP. The torrent of money will be funneled through Fannie Mae and Freddie Mac, and purchases on the long-term treasury market. The media circus around AIG is shielding this inflationary tactic against the risk of public rage.

Last time the Fed has bought back its own treasuries in a big way like this was apparently during World War II.

This week will be the week that history says that Obama, Geitner and Bernanke stealthily launched the decisive battle against the second Great Depression. Obama is proving to be a master at messaging. This week he has taught us that you don't need to keep a secret to move a trillion dollars quietly.

WSJ article here; NYT article here.

Nate Silver has a nice graph showing the spread of the AIG story, starting with a Washington Post article the night before the AIG counterparty press release. I disagree with Nate that the meme spread organically or that it was driven by bloggers: Geithner, Frank, and Summers simultaneously called AIG "outrageous" on the Sunday talkshow circuit, and strikingly Bernanke and Obama - not known to respond to bloggers - also went out of their way to draw attention to AIG that day. Meanwhile the real action was about to be launched at the Fed, without a single media comment from that same group.

Some have noted that the Bernanke move is only likely to succeed if the world is looking the other way.

It is information warfare, executed with military precision.

Posted by David at March 19, 2009 07:40 AM