AIG made a lot of bets that there wouldn't be epidemic deadbeatism in the world. There was and is, and it cost them. Goldman and similar correctly bet that there easily could be, because they wanted to hedge against it. If AIG goes bankrupt, does it punish AIGs failure or Goldman's successful prediction? Answer, the later. Bankruptcy doesn't hurt the deadbeat, it hurts his creditors.
"Well Goldman should have hedged with somebody else instead". Right, because it should have known beforehand that AAA rated trillion dollar book companies were clearly going to be insolvent the next day. Acting on that principle, do you know who in the world deserves a dime of credit? Nobody. Not you, not your neighbors, not your bank, not even the government.
AIG shareholders deserved to get hurt because they back men who were wrong. Guess what? AIG stock is at 40 cents, and the government took 80% of it to boot. They were wiped out, what more blood do you think is in that stone? Now we are instead just debating whether those who bet *correctly*, should be stuck with the loss *anyone*, because the men they bet *against* were stupid. If you answer "yes", you aren't punishing failure, you are punishing success. You aren't demanding that men bet intelligently, you are demanding that they not deal with each other at all.
And if you enforce that demand, then there is no capital because there is no credit because nobody pays. You aren't stopping the epidemic of deadbeat behavior, you are demanding it run. Well, it will run until it arrives at *your* door. How long do you remain solvent if everyone who owes you a dime defaults and welshes, while all your creditors demand payment instantly? That includes your bank welshing and not letting you withdraw a dime, by the way.
I don't understand why this is so hard to see. The loss already exists, it will careen around destroying everything in its path is it isn't *allocated* and *eaten*. You can't make it go away by not paying it. You just make it destroy 10 more intermediaries who don't have it, and it arrives right back at your feet.
There is no one to allocate a $2 trillion loss to "only those responsible". Those responsible blew out about five exits back, they already lost their shirts and their creditors creditors creditors creditors have their collateral, such as it is. In case nobody noticed, the guys on the winning sides of all the bets *are* the ones paying, that is what default and bankruptcy mean. Think the borrowers on the street who stiffed their bankers for a trillion in bad debts are the ones who paid?
Pay up already! The only way this gets behind us is to *take the loss* and move the hell on. Fighting over it just multiplies it, you'd think that would be tolerably obvious by now. All the populist attempts to punish the heart for having heart attack won't get the patient up off the table. Without a functioning healthy profitable financial system, the government is broke and so are you. You can't save yourself by demanding the economy's heart by cut out and burned on an altar. Give it up already.
If I made a bet with Joe down the street for $100, and we agreed that my neighbor would take $10 from each of us and insure the bet in case the loser couldn’t make the payment, I would be a blame fool for thinking I would ever see more than $10 off of that bet, even if I won. Joe might not pay up, and Harry might not have more than the $20 we gave him. That would be the risk I took.
But, what the hey I’m not a banker with more brains than common sense apparently.
We should have let horse racing officials or maybe some casino owners handle these bets. They would have done better handling bets than these elites.