Remind me again why markets work so well?

http://www.nytimes.com/2009/02/28/business/28nocera.html?_r=1

According to this apocalyptic piece in the New York Times, the insurance and banking megalith AIG, which you and I now essentially own, lock, stock, and smoking crater, is about to announce a $60 billion quarterly loss.

Read that sentence again, and try not to throw up in your mouth.

That's billion. With a B. And you, and I, and the guy down the street, HAVE to prop up this mound of stinking fecal matter, or you go to the ATM tomorrow, and there's nothing in it.

"If we let A.I.G. fail, said Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European banks “will face their own capital and liquidity crisis, and we could have a domino effect.” A bailout of A.I.G. is really a bailout of its trading partners — which essentially constitutes the entire Western banking system."

But what kills me, the absolute sine qua non of why we should take the whole stinking bunch of them and crucify them, up and down Wall Street, as a lesson to the rest, is this sentence:

"Like everyone else on Wall Street, A.I.G. operated on the belief that the underlying assets — housing — could only go up in price."

Really? Really? Your brilliant plan hinged on prices only going UP?

My nephew Simon is not yet two, and he's got a pretty good grasp on the fact that there is "Up", and there is also this other direction, that we tend to call...oh what is it......you know.....oh yeah, "Down".

Bunch of fracking morons.