The Fed takes over. The failure of AIG - and of the Credit Default Swaps market - would have resulted in an economic death-spiral for the world economy, not just the United States.
The circumstances today dwarf the conditions that led to the bailout of Long-Term Capital in 1998. The lessons of that disaster were willfully ignored. The reason: Chairman Greenspan, Phil Gramm and the Republican faithful - and to some extent the Democrats too - were too enthralled with the notion that 'Markets always work.' Ideology trumped a sober-minded assessment of the ground reality. Facts to the contrary be damned: Potemkin Village, anyone?
That said, since taxpayers foot the bill today, they should share in the gains tomorrow. Fair is fair.
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