AIG is not a true bailout in the sense of the banks are being bailed out. The fools at AIG financial products in Stamford (the “hedge fund” part of AIG) did a decent job of selecting risks. The credit default swaps they sold generally have not been called for payment.

Where AIG FPC were idiots was in cash flow management. Where Warren Buffet wrote huge swaps insuring against market declines (which have happened), he is not required to post collateral – even though he is over $12.5 BILLION under water. Smart dude. AIG wrote default swaps on AAA tranches, which are not in default but they “forgot” that they would have to post collateral if the mark to market dropped on the tranches. Dumb dudes.
So, the Market tanks, the collateral calls run to about $100 BILLION, AIG doesn’t have that cash, call Gov’t and hock company. That’s where all the gov’t money went. Notice the gov’t won’t say where all the collateral is going – despite the entire US Congress demanding to know….

(NOTE – AIG could have done swaps similar to Buffet’s, but they would not have received as high a premium as they did for including the collateral right.)

If it is indeed true, that companies all over the world would have failed if hadn’t been given the money that they have been given, that surely is a good reason.

But, with Lehman being refused 6billion, and the next day AIG getting the 85B, it looked like a scheme to make money off of the failure of Lehman, and then pay off the bets with the gov money. I know, i have read all the articles about only an unbelieveable “5MILLION” being paid out NET, but that all seems so suspect and more a way to get money to Goldman and/or Morgan, but maybe that was a byproduct more than the reason.

It is too bad that the public would resent the bailout for the world since AIG was the biggest maker of this mess, and with the size of failures that you suggest, it may be that this move saved the face of the US to some extent…and that is a good thing. Thank you.

What if we were to allow AIG to default on its CDS obligations? The Euro banks exposure that is backed by AIG’s credit insurance is massive, in $’s and geographic area. Spanish banks are heavily exposed to Latin and S. America, full of coveted natural resources. All the other euro banks are up to their eyeballs in E.Europe. Right next door to Russia.

So, do we let AIG fail? By extension cratering the banks, economies, and possibly the political systems of our strongest historical allies and by extension the areas to which they’re exposed. I don’t know. Thinking of it makes my head hurt and I still have a day job, thank God.

But in the end I don’t think I’ll have to make up my mind. When it filters to Main Street that hundreds of billions of tax $’s are going through AIG to prop up the economies of foreign countries, the jig will be up. The political will for the next round of bailing AIG will vaporize.

No matter how you slice it, with the wide range of opinions on what is going on, all the numbers and so called “facts’ that seem to surface about who the money is going to and should it have happened…no matter how much info is provided by AIG, until or UNLESS, the truth is told about who really received the first 85Billion ( from the back door of AIG) , we will never know if this whole fiasco was orchestrated with two gentlemen who look to have America’s best interest at heart, but who may have insisted on “letting Lehman fail” by refusing Lehman the 6 billion bridge loan, and with equal fervor insisted on “saving” AIG to actually pass the milk and honey in the front door and out the back to certain firms that became bank holding companies just in time for a TARP party in October!