Romeo Fayette

America Buys AIG

While I completely agree that these companies should be fed to the wolves, please realize why the government keeps sheltering them. Against Corporate Welfarenull, I agree with so much of what you say, particularly (further, exactly) the ideals for which you're calling, but understand something: keeping these corporations on life support is unfortunately very relevant to our interests as citizens and taxpayers.
If AIG folds, the fallout will ripple throughout the American economy. Yes, some assets (equity & debt) have the risk of default or principle evaporation priced in quite explicitly (or even implicitly). In the case of CDS contracts, these are CONTRACTS, whose prices are derived like options--to put it simply, they're linked to the underlying debt quotes with a time value influence. There's some debate as to the pricing model for CDSs, but no conversation includes the risk of counterparties not honoring their contractual obligation. If AIG folds, both speculative traders of CDSs and [proper] investors who hedge with such credit insurance will lose. These hedgers and speculators include everyone from Morgan Stanley to Jane Doe.
MS failing obvi hurts our economy, the dollar, etc. We have no sympathy for them cuz they're a corporation and the perception is thus that they used such derivatives more often to speculate than to transfer risk. Jane Doe is a one of many taxpayers who took proper measures to protect herself against losing a lot of money upon the occurance of a "credit event."
The end result: Jane Doe/the taxpayer gets hit twice by the disappearance of their insurance premiums & protection, plus the loss of their US$ purchasing power.
If the government doesn't bail out AIG, et al, then our "safe," sacred personal savings in the bank becomes threatened. Why? because FDIC has to honor lots of deposits. FDIC is skimming the bottom of its piggy-bank, and it'll have to turn to the government to raise cash after another big failure. Thus, the onus falls on the government and the taxpayer one way or another.
I think the crime is that there exist corporations that're so large that they can control so much of our economy. I guess that's just unbridled capitalism, but with anti-trust/monopoly/wh... restrictions, it's amazing that such "crucial" firms exist to whose welfare ours is linked.