The "bailout through the backdoor" that was the AIG bailout is now exposed. Eliot Spitzer wrote yesterday:

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars? . . . [W]ho were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already. . . . Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed? . . . AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.

After all this, what are the chances that the country will just go along with another trillion dollar free handout to the financial institutions? Precisely zero in my opinion. Friedman writes:

Unfortunately, all the money we have already spent on A.I.G. and the banks was just to prevent total system failure. It was just to keep the body alive. That’s why healing the system will likely require the rest of the TARP funds, plus the $750 billion the administration warned Congress in the new budget that it could need.

Best I can piece together, the administration’s recovery plan — due out shortly — will look something like this: The U.S. government will create a facility to buy the toxic mortgages off the balance sheets of the major banks. They will be bought by a public-private fund or funds in which taxpayers will, in effect, be partners with hedge funds and private equity groups. The hedge funds will be there to provide expertise in pricing and trading the assets. The taxpayers will be there to guarantee — gulp — that the hedge funds won’t lose money if they take the early risks and to also lend them money to make some of the purchases. Taxpayers will benefit from any profits these partnerships make.

Once the banks sell their toxic assets, many will need capital, because, while they may be carrying these assets on their books at 85 cents on the dollar, they initially may have to sell them for less. So, the government will probably have to inject capital into more banks to maintain their solvency, but once the banks begin to clear their balance sheets of those toxic assets, they will likely attract the private capital they need and relieve the government of having to put in more.

(Emphasis supplied.) If Friedman is probably describing the Obama Administration's plan, it has not a chance in hell of being approved. The only way to sell a new financial industry bailout is for the government to take over temporarily these insolvent institutions. The government then can negotiate the sacrifices that will be made by the various players and insure that any windfall that comes goes to the government.

Friedman writes:

Will it work? We can only hope. But I know this for sure: unless the banks are healed, the economy can’t lift off, and that bank healing is not going to happen without another big, broad taxpayer safety net.

The only way that happens is if temporary takeovers are part of the equation. President Obama can not sell, indeed should not even attempt to sell, another no strings bailout.

Speaking for me only