The WSJ is good here in looking at how the newly expanded AIG bailout is basically a backdoor bailout to banks. What it’s doing is bailing out the financial geniuses who bought up CDOs and then insured them with a company that couldn’t afford to insure them.

Under the plan announced Monday, the banks will get to keep the collateral they received from AIG, much of which came when the government made funds available to AIG in September. The banks also will sell the CDOs to the new facility at market prices averaging 50 cents on the dollar. The banks that participate will be compensated for the securities’ full, or par, value in exchange for allowing AIG to unwind the credit-default swaps it wrote…

“It’s like a home run for some of the banks,” says Carlos Mendez, a senior managing director at ICP Capital, a fixed-income investment firm in New York. “They bought insurance from a company that ran into trouble and still managed to get all, or most, of their money back.”

It’s like a home run hit by a juiced-up ballplayer—it’s a scandal. How big will the bonuses be this year?

I like this excellent analogy here:

The plan is analogous to an insurer buying a house it provided fire insurance on, negating the need for an insurance policy on the home.

But the spin is enough to make me retch:

A person familiar with the government’s rescue plan says it wasn’t specifically designed to benefit individual banks at the expense of U.S. taxpayers and AIG, which will end up bearing the risk of the CDOs. However, officials wanted to give banks sufficient incentives to sell the securities so that AIG could cancel the swaps.

We haven’t even begun to see the revulsion and uproar from citizens over the scandals on Wall Street and the Washington know-nothings who let them happen.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.