THE US government is not following the script, some will argue.

After signalling that brash Wall Street bankers should fall on their swords for taking irresponsible risks by allowing investment bank Lehman Brothers to fail, it is now rushing to save ailing insurance giant American International Group - only a day or so after rebuffing its SOS signal.

And instead of easing up on costs of funds as many would have expected at its regular meeting, the US Federal Reserve had opted to keep interest rates steady last night - and this is despite the worst turmoil in the money markets since last September.

So it is not surprising that the bailout of AIG is greeted by muted jubilation across Asian bourses this morning. 

There have been so many flip-flops so far this week that traders simply don’t know what to believe anymore. There is a credibility issue here. The likelihood is that there will be more turmoil because there is a lack of clarity on what is going on.

The Straits Times Index has fallen to 2,439 two hours into trading, after gaining up to 33 points at opening bell.

Compare this to the wild exuberance which swept across global financial markets when the US government engineered a similar rescue of Bear Stearns in March when the STI leapt by over 400 points the following month.

On hindsight, some will argue that AIG is simply too big to fail.

In an impassioned plea for US government help, its legendary former chairman Maurice Greenberg, who spent 30 years building it up into a global financial giant, argued that the insurer has over 100,000 employees and millions of policy-holders spread across 130 countries.

Its failure would have posed systemic risk to the global financial system, given the large counterparty agreements it has with other banks and insurers worldwide, he added.

But the truth is that AIG faces a solvency problem. The swift deterioration of the quality of its assets after Lehman's failures meant that it couldn't come up with enough good collaterals to get the life-nourishing loans to keep going.

Only the imponderable political costs of allowing it to go under - with an US presidential election just weeks away - has kept it on the life-support denied to other patients like Lehman Brothers.

The financial storm now gathering pace on Wall Street is unlikely to stop at AIG's doors. Short-sellers will simply move on to the next shaky bank on the block.

In the end, the US government may simply be forced to do what other national governments had done when they encountered a financial crisis of such colossal proportion.

Take Indonesia. At the height of the Asian financial crisis a decade ago, it was forced to take over some of the country's biggest firms - motor car distributor Astra International, as well as big financial firms such as Bank Central Asia and Bank Danamon.

It took years to nurse them back to health.