This NYTimes story
about AIG is a-freaking-mazing. Excerpt:
A quarter of a trillion dollars, if it comes to that, is an astounding amount of money to hand over to one company to prevent it from going bust.
Let it go bust.
As the story details, the losses are in credit default swaps, which are insurance policies written against mortgage-backed securities. AIG
wrote lots of them, with premiums that were ridiculously low, pocketed the cash, and now that the housing bubble has burst, can't cover the policies.
Sounds like holders of mortgage-backed-securities should take the loss (since AIG is unable to compensate). What's so complicated about that?