In an oped in today’s WSJ, Peter Wallison notes a fundamental inconsistency in the government’s defense of the AIG (AIG) bailout:

Since last September, the government’s case for bailing out AIG has rested on the notion that the company was too big to fail. If AIG hadn’t been rescued, the argument goes, its credit default swap (CDS) obligations would have caused huge losses to its counterparties—and thus provoked a financial collapse.

Another Friday and another bank that was deemed “healthy” by regulators and the U.S. Treasury sees its bailout shares wiped out. Taxpayers this time lost $4.1 million as the Federal Deposit Insurance Corporation (FDIC) seized the southern California Pacific Coast National Bank. Sunwest Bank of California will assume Pacific Coast’s deposits and assets.

FDIC head Sheila Bair, apparently anxious about the fact that her agency had wiped out a combined $303 million in taxpayer capital injections in two weeks, sat down with Paul Solomon of PBS’s Newshour. The FDIC is as much in the bailout business as the U.S. Treasury, but she used the interview to slam the U.S. Treasury’s efforts. She criticized the Troubled Asset Relief Program (TARP) capital injections into the big banks and, in the same breath, she said that the FDIC’s under-priced credit default swaps called the Temporary Liquidity Guarantee Program (TLGP) was the best way to run a bailout.