The company claims any failure by the government to [back all of AIG's obligations] would have catastrophic consequences. This claim is exaggerated. Serious consideration should be given to forcing AIG's partners in derivative transactions -- which are mainly buyers of credit default swaps from the company -- to take a substantial haircut.More on AIG: "AIG Still Isn't Too Big to Fail," by Harvard Law's Lucian Bebchuck. Via Josh Marshall, who provocatively writes:
These are derivatives, in many cases high-stakes bets on underlying assets the purchasers did not themselves own. So, you insure your house for fire damage. And I insure it too, even though it's not my house. Your house burns down and you get the policy payout to rebuild your house. But I just want my money because a deal's a deal. I have no problem with old-fashioned gambling. And if people want to play with their money this way, I've got no problem with that. But if the casino itself goes bust, don't come to me and talk about having moral claim on your winnings that I need to cover.