Stage is Set for Panic Selling: Will Bush and Paulson blink?

The stage is set for panic selling. The question is whether Treasury and the White House blink. I think there is 90% odds that they blink on AIG and provide a government backstop to an initial upfront commitment/private market solution from a consortium of banks. I think there is 10% odds that the WH remains ideological on the issue which would create catostrophic downside in equity markets, imo. You could easily see a 10% decline in a blink if the governement officially declares that they are not going to be involved whatsoever in an AIG deal. I am too concerned about the 10% chance that the President is ideological on the issue (his advisors have to be advising him on downside scenarios but the recent announcements have not been encouraging) to want to be aggressive here. There has to be some kind of package in the next 48 hours. AIG represents the big bad event as they are a central participant in the CDS market. Counter-party risk is titantic. Stay cautious!