Barry Ritholtz clearly describes the AIG mess. His bottom line:

When we nationalized AIG, we should have spun out immediately the good, solvent life insurance company. The hedge fund should have been wound down in an orderly fashion.

This sounds good – and bailing out a hedge fund is infuriating – but given AIG's trading partners it's hard to see how shutting down this operation would have been "orderly." Here's Noam Scheiber:

I think it's unfortunate that we have to spend hundreds of billions of dollars bailing out not just AIG but, indirectly, Goldman and a lot of European institutions, but I don't really see an alternative. (I think of the benefits to Goldman et al as a kind of collateral damage.) I really believe AIG is too big to fail--that its failure would cause the kind of global financial meltdown that would make Lehman look like a tiny spark.

Mish isn't worried:

There is no need to prevent another Lehman.

Instead, there is precisely a need for more Lehmans. The sooner we stop trying to prop up failed institutions, the sooner the economy recovers. This is the lesson of Japan. Kotok badly needs a history lesson.

Felix Salmon is also on the case:

Joe Nocera does a great job of explaining how AIG managed to scam the system to generate enormous amounts of income; unfortunately there seems to be no way that the government can claw that income back. But I do wonder whether we might not see some criminal complaints against former AIG executives at some point. They are, as Nocera says, the people who turned AIG into "ground zero for the practices that led the financial system to ruin".

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