Why not let AIG fail? Can 'systemic risk' be a scare tactic?


The more I learn about why we've committed $180 billion to a company that lost $99 billion in the last year, the more I scratch my head and wonder: Why we don't just let it fail? The answer that comes out of the government seems to be because of 'systemic risk.' But one thing that does not come out of government is the answer to the question: How much would systemic risk cost?

As best as I can tell so far, 'systemic risk' is a phrase that is repeated with a solemn demeanor and a knowing look of disaster intended to scare the government into giving the company everything it wants. In this case, the company is American International Group (AIG), whose CEO said yesterday that if ratings agencies had downgraded its debt, AIG would have been required to come up with $8 billion to $11 billion worth of collateral. Doesn't AIG already have that money on its balance sheet?