There are 5 questions there. Give it a shot.
Why should I be be bailing out a zillion dollar company?
Why should I bail out your investments, retirement funds etc?
Are you going to bail out the tens of thousands facing foreclosures?
Are you going to bail me out if I make an investment that goes belly up?
If not, why not?
I'll re-arrange these...
Why should I bail out your investments, retirement funds etc?
No good reason. Of course, a bail-out has to be defined, and sometimes a bail-out is a side effect, not a purpose.
If there's one difference between the solutions proposed by RATS and pubs, it's that RATS want to help the little people, in all cases; pubs want to avoid a financial meltdown.
In the case of Fannie/Freddie, the government will probably turn a profit, unless there's law requiring them to write down the face amount of some loans.
In the case of AIG, the govt will make a profit.
Are you going to bail me out if I make an investment that goes belly up?
Not unless there's great systemic risk, as opposed to individual pain.
Are you going to bail out the tens of thousands facing foreclosures?
It may very well come to that, if systemic collapse is likely.
Why should I be be bailing out a zillion dollar company?
You aren't. This is a bridge loan so that AIG can sell the assets it needs to sell without conducting a fire sale. The alternative is financial meltdown of Great Depression proportions.
I think that addressed all your questions...
This isn't a matter of pulling someone's fat out of the fire; this is a matter of avoiding a major financial crisis, one that would take years to work out. I think the feds have done well so far, taking the lowest cost approach to each circumstance.
If you want to understand the financial issues involved, the housing market is a good place to start. Four years ago there were all kinds of mortgages that, frankly, didn't make financial sense. 100% financing for folks with 600 credit scores, combined with historically low interest rates. That created a lot of demand for housing, some artificial.
Okay...mortgage rates start to go up. Suddenly houses aren't as affordable anymore. Demand levels off, as do prices.
ARMs start to mature with interest rates significantly higher than the start rate. For A credit, mortgages index up from 3% to 5%. For sub-prime, mortgages index up from 6% to 9%.
Folks are increasingly unable to refinance, because many who refi'd took out equity, and they don't qualify at the new amount and rate. For those who are sub-prime, their new payment is based upon a 9%-10% rate. Houses start to get foreclosed.
This starts a slide in house prices. As lenders take possession, they put the houses on the market, at a discount; prices slide at an accelerated rate. This causes more foreclosures, as lower house prices cause lending standards to tighten, which along with lower house prices causes more foreclosures...and you've witnessed the start of a vicious and destructive cycle.
The Feds have stepped in in limited ways. They've increased conforming loan limits and expanded eligibility for FHA refinances. They hoped to stop the tide, and I think they've succeeded in slowing it. They don't have the resources to stop a housing rout, and hope to avoid one by starting early.
Now, turbocharge that process, and you'll understand what's at stake with the likes of AIG.