Scroll down for updates…Obama will “pursue every single legal avenue” to block AIG bonuses….

I snorted this weekend over the fecklessness of Tiny Tim Geithner, crawling on his knees to AIG in an attempt to avert a public relations disaster concerning the bailout behemoth’s massive executive bonuses.

AIG, 80 percent owned by taxpayers, basically told Geithner — their rescue handmaiden — to take a hike. Now, you can read AIG president Edward Liddy’s snotty letter in its entirety here. A snippet:

Needless to say, in the current circumstances, I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them…

…I would not be doing my job if I did not directly advise you of my grave concern about the long-term consequences of the actions we are taking today. On the one hand, all of us at AIG recognize the environment in which we operate and the remonstrations of our President for a more restrained system of compensation for executives. On the other hand, we cannot attract and retain the best and brightest talent to lead and staff the AIG businesses – which are now being operated principally on behalf of the American taxpayers – if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.

Barney Frank is already in full Kabuki outrage mode. President Obama is scheduled this morning to distract the nation with some sort of sop to small business owners. He may even muster up some faux anger and wag his finger at AIG.

Gag. Spare me.

Both parties in Washington created this Frankenstein. Make no mistake. President Bush, with help from now-Treasury Secretary Tim Geithner and his mentor Hank Paulson, pre-socialized the economy and stabbed fiscal conservatism in the heart with the original AIG bailout. Here is what I wrote on September 19:

Bush Treasury Secretary Hank Paulson just wrapped up his press conference announcing the Mother of All Bailouts. He said a “bold” approach was needed to achieve “stability” in the market.

Let me translate that.

“Bold” = Massively massive, taxpayer-funded rescue.

“Stability” = Privatizing profits and socializing losses on a scale we have never seen before in our lifetimes.

I have had it with Pollyanna conservatives who continue to parrot the “fundamentals of the market are great!” line.

The fundamentals of the market suck. The fundamentals of capitalism have been sabotaged.

Yes, yes, crony Democrats are to blame for much of how we got here. You don’t need to recite all the talking points back to me. I’ve been writing about the Fannie/Freddie debacle for years.

But it is September 19, 2008. And this is a Republican White House presiding over the Mother of All Bailouts. Every step along the way since stimuluspalooza began last summer, we’ve heard that every bailout step was just a one-off. Each step was supposed to calm the markets. Each new government intervention and allocation of taxpayer dollars was supposed to achieve “stability.” Each new package of goodies rewarding irresponsible behavior and bad financial decisions was supposed to prevent new ones.

None did. And now, here we are.

This is your Bush legacy — not Pelosi’s, not Reid’s, not Obama’s: A ginormous bailout of every last, failing, panicked financial institution’s illiquid assets that may reach into the trillions — TRILLIONS – when all is said and done.

And here’s what I wrote on March 2, when Obama decided to dig an even bigger hole:

Screw up, move up. It’s how Obama cabinet officials get ahead. And it’s how Washington’s favored failing businesses get more of your money. The first $85 billion bailout under Bush didn’t work. The second $38 billion under Bush didn’t work. So, hey, how about tossing another $30 billion down the hole?

So much for President Obama taking a stand against Bush’s failed policies, eh? But don’t worry. We’ve got Bozo the VP looking out for us this time, making sure all the money is tracked on the Internets.

Government is not the solution. Government is the problem. Don’t let any of the bipartisan buffoons tell you otherwise. The sooner we have at least one party in Washington that can hold fast to basic fiscal conservative principles in the face of crisis — see: GOP presidential candidate McCain flip-flops on AIG bailout, circa 9/2008 — the better.

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Update 10:33am Eastern. Obama wags his finger. “I’ve asked Geithner to pursue every single legal avenue to block these bonuses and make the American taxpayers whole. I want to make clear that Geithner has been on the case.”

Yeah, he’s been on the case. That’s the problem.

Coughs. “Excuse me, I’m choked up with anger here.”

Audience laughs.