Is AIG going down?

Photo by Spencer Platt/Getty Images)

The New York Times‘ DealBook blog reports on the latest rumor about troubled insurance giant AIG:

If a financing solution is not reached, AIG may file for bankruptcy as soon as Wednesday, a person briefed on the matter said Monday night. The company has hired the law firm Weil, Gotshal & Manges — which is also handling the Lehman Brothers bankruptcy — to draw up bankruptcy papers.

As reporters Michael J. de la Merced and Eric Dash note, this leak may be a way of pressuring the Federal Reserve into coughing up some government money. It could be coming from the company or from buyers looking for a helping hand.

But if not, and AIG goes belly-up, it’s stunning how rapidly the dominoes are falling. NYU Economist Nouriel Roubini has been hammering home the point in recent days that highly leveraged financial firms such as Lehman Brothers have a “flawed business model.” He says that unless investment banks Goldman Sachs and Morgan Stanley find a buyer with deep pockets, just as Merrill Lynch leapt into the arms of Bank of America, they’ll go bankrupt, too.

UPDATE: Looks like the scare-tactics worked. The U.S. government is diving in.