As we evidenced by the recent AIG bonus scandal this weekend and the continued disclosure on the AIG bailout money, it seems clear that the US Government, in a reversal of the basic moral principles that support any democracy, has decided that fraudulent conveyance, is completely legal. In choosing to uphold what are clearly fraudulent contracts over basic social contracts, the government, in the guise of a “lender of last resort”, has put the financial system at a great risk of disintegrating into complete anarchy.

At this point, it is very hard to see how there is a way out of this mess without another major disruption in the financial markets.

On the one hand, I believe it is highly unlikely that the continued fraudulent transfer of wealth from US taxpayers to major financial institutions via the AIG shell game will continue. The fraud is now too obvious and too well covered by the media. One at least hopes that Obama will put a stop to this fraud soon.

However, the problem is that when this gigantic pilfering comes to a halt the remaining financial players, who are only surviving due to fraudulent AIG transfers, must surely collapse bringing tremendous short-term harm to the financial system.

If on the other hand, government officials continue in their blatant disregard of outright theft by major financial institutions, there will undoubtedly be a major social upheaval in this country, which would surely bring down our financial system and cause significant long-term damage. I find it highly doubtful that US citizens will continue to sit idly by as their savings and future income are compromised by incompetent government officials who have been either hoodwinked, or in some cases in cahoots, with major banks.

So it would seem that no matter what happens now, our current financial system will need to be radically restructured sooner rather than later and this must lead to a further large decline in the stock market. One would hope that the government will choose short-term pain over long-term and irreparable damage, but based on the recent past that optimism may be misguided.

About the only thing that can save the market is if the government and other market shills succeed in somehow convincing a large majority of investors that banks can “earn their way out of this mess”, as long as we keep printing money and forking it over to the banks? But can this new version of trickle down economics possibly be taken seriously?

It’s doubtful, which is why I’d still be very cautious on any market rally and continue to trade aggressively. I think one can only seriously consider investing again in the Market, when, and if the government decides to actually restructure the financial system, instead of maintaining the status quo.