The treasury (1) guarantees all bank deposits, if not paying $100 causes $1000 in defaults on bank deposits the treasury is out $900, not up $100; (2) receives 20% of all private economic activity in taxes, if not spending $100 causes a $1000 drop in economic activity the treasury is out $100, not up $100.
On the ridiculous populist "bonus" crapstorm, half of Wall Street pay takes that form in normal years, and it goes out on individual not firm aggregated results. There are specific traders who bring in hundreds of millions of revenue and receive a modest portion of that as incentive pay.
Here is a parallel idiocy in an industry more people understand. "Gosh, what with car companies losing so much money, it is outrageous for car salesmen to be receiving commissions for selling cars. I mean, car sales are off 25 to 50%, surely car salesmen don't deserve any *bonuses* for selling cars!" So right when you need to sell cars, and after you'd already closed half the big dealerships and fired 20% of your combined staffs, you in addition decide to get rid of paying commissions to car salesmen. Just pay 'em minimum wage to stand around the lot or whatever, regardless of how many cars each one sells. That'll sure recover your sales, won't it?
If AIG goes chapter 11 that means they don't pay their debts; that means anyone who they won money takes the hit instead. AIG doesn't take the hit, they haven't got it. Now you get to bail out of let fail all their counterparties, and everyone scrambles to not do business with anyone else you might take a dislike to because they once went to a golf course or something.
The losses from that scramble are 10-100 times the size of the initial hit. In case nobody noticed, the entire banking system has lost $1 trillion of its capital and is undercapitalized by half that easy. Being in favor of failure in the form of Lehman has already cost the treasury 20 times what letting it fail without loss would have cost, and cost everyone else more like 200 times.
You can't get blood from a stone and the capital of the banking system is not optional, you can't raid it like a piggy bank. Every dollar of loss you put there, from the time of Bear onward, has cost many times any direct savings.
It simply isn't a zero sum game, therefore redistributionist envy driven thinking is hopeless in addressing it. Only a restoration of profits and confidence can help the US treasury. Destroying every US company there is would not save it one thin dime. The US treasury to wed at the hip to the future profitability of the US corporate sector. It is only punishing itself every time it takes another populist whack at them.
How stupid are you people?
AIG is just writing the insurance policies. Eventually, people at a lot of levels At AIG made flawed decisions. Okay, men are fallible. I didn’t like propping up the banks decisions in October, but I accepted it.
Now, it’s March and basically the banks have not materially corrected their deficits. Why should they, the world’s governments have basically proven they will throw mad sums of cash at them?
If State Farm screwed up and wrote insurance policies they couldn’t cover should the government bail them out? Should state far, if bailed out, even continue to write insurance policies to then require it to give bonuses to it’s agents, until it’s back in order?
I’m do a bonus myself in February. I don’t happen to be a banker. Would you support the government stepping in to insure I get my bonus if my company fails?