“Without the implicit government backing of Fannie/Ferddie mortgages, AIG would never have been able to issue CDOs as they did.”
Why not? They were free to be as stupid as they wanted. And there was big money being made if you ignored the risks. So what if your bank fails if you’ve been making 10 million a year. Not to mention that most of the supposed security was not from the government, but from the big wall street banks, the financial geniuses who bundled up mixed bags of mortgages, took them to their pals at Standard and Poor, got them rated AAA, and thus gave the credibility for people like AIG to issue the CDO’s. All involved made fortunes until the ballon burst and we were left holding the bag.
>>All involved made fortunes until the ballon burst and we were left holding the bag.
What do you mean “we”?
There was no reason to bail out AIG or any of its counterparties.
The only crisis was that Paulson’s buddies were about to lose their nut...they should have.