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Comment by makomk | Hacker News Reader

Not exactly. The key thing you're missing is that AIG weren't actually the main beneficiaries of the AIG bailout, the people who bought CDSs from them were. Effectively, a bunch of other companies convinced AIG to to sell them insurance for way less than it should cost, in many cases on property they didn't actually own, by conning them as to how risky it would be.

To continue the metaphor, it's like if a guy conned your family out of their life savings, and then the Government generously seized your home in exchange for paying the guy who scammed you the rest of the money you owed him which you couldn't afford to pay.

Edit: see, for instance, http://www.huffingtonpost.com/david-fiderer/the-cdos-that-de...

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AIG isn't a company run by widows and orphans. The department that issued that insurance was full of the most stereotypical Wall Street shark assholes around, who thought they were smarter than everyone else and getting a big free payday. They got scammed in the way a casino scams the idiot wearing sunglasses at the craps table.

Yes, the government bailout of AIG went towards paying off their counterparties. But those were actual debts that AIG owed because of their own stupidity and greed. Had AIG gone bankrupt instead, the counterparties would not have received anywhere near full payment, and there's a compelling case to be made that that's how it should have been. But this idea that AIG somehow got screwed by having to pay off their shitty bets with our money is laughable and disgusting. If the shareholders want to sue someone, it should be their own board.

By that standard you must also reject legislation that limits interest rates charged by payday loan shops? It is very much the same situation: What is a reasonable interest rate for a loan made to someone or some corporation under duress?

legislation that limits interest rates charged by payday loan shops

If the government were a payday loan shop and gouging thousands of independent companies everyday, your analogy would hold water. Till then, this is merely a straw-man argument.

Guess who owned most of the AIG shares that were diluted as part of the Government bailout, though? It certainly wasn't the guys that were running the shop - it was your pension scheme, and everyone else's pension scheme.

Also, I got my analogy wrong. It would be more like if the Government seized 92% of your house in exchange for loaning you the money to pay off the scammer with interest, which they knew you could repay.

Even after the massive swindle, AIG's problem was liquidity and not insolvency - they had enough assets to repay everyone and if they'd actually gone bankrupt, the shareholders may well have come out better in the end, but their counterparties would've been screwed because they'd have had to have waited for the bankrupcy proceedings to get paid.

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