S&P finally downgrades the insanely leveraged insurance company, but far too moderately. Moody's may be more realistic. Here's my rating: BROKE. By the way, like all of the current crisis, this marks a return to reality, the inevitable acknowledgement of the damage done during the Greenspan-Bernanke boom. How wonderful to watch the Fed and the Treasury admit their inability to save their biggest pals.

UPDATE Fitch and Moody's have finally downgraded AIG too. Another illusion punctured.

UPDATE 2 from Peter Collins: "A better interpretation of the downgrade of AIG is that the stock market downgraded them first; their equity has gone from $70 last October to less than $3 today. S&P and Moody's are only reluctantly following the market's lead. Behind the scenes, following the market's final and irrevocable judgement on AIG's survival, the powers that be are working feverishly to put AIG on life support and to keep the rest of the financial system afloat. Be sure that the rating agencies are acting only to save face and were given permission to do the downgrade only after coordinating with the Fed and the Treasury."