The huge gapping hole in this article is the fact that AIG share holders probably would have been completely wiped out in bankruptcy. It&#x27;s very rare for a company to come out of chapter 11 with the shareholders still keeping their equity.<p>The big problem during the panic was that those mortgage packages had no value because nobody wanted to touch them. That&#x27;s why they were called toxic assets. And AIG was insuring all those toxic assets. Nobody had any idea how much AIG was on the line for. So nobody would buy it, loan money to it, or invest in it.<p>So taking 80 percent might have been too low of a percentage. If AIG could get a better deal, why was it begging the Fed for a bailout? The answer is this was the only deal they could have gotten.<p>The motive for all this was that AIG owed money to everyone. If it goes into bankruptcy, it stops paying out. And then there is a huge liquidity crisis. The banks they owed money to needed that money to stay solvent. If AIG goes insolvent, most of wall street goes insolvent.<p>And the government had just watched the same exact thing happen when Lehman went into bankruptcy. It shocked wall street.<p>They honestly (and probably realistically) feared AIG going into bankruptcy would destroy the credit market. That is catastrophic. Companies wouldn&#x27;t be able to borrow to make payroll. Companies would go insolvent due to liquidity issues. Shelves would stopped being stocked. During this period F500 companies finance departments were freaked the fuck out. They were having trouble financing day to day operations.<p>One of the big downsides to bailouts is they cause moral hazard. So the solution is make the bailout just barely tolerable. That&#x27;s why AIG can&#x27;t just get a big zero interest loan.<p>AIG stockholders shouldn&#x27;t have gotten rewarded for running their company into insolvency just because their downfalls carries a systemic risk. The fair thing to do is to wipe the shareholders out 100%. Why should an company that appears to be worthless (since nobody will buy it), who is insolvent, who is a massive risk to the world economy, get a single dime in compensation.<p>The only reason they got anything was so the company didn&#x27;t turn down the deal out of spite.<p>AIG was worthless. I can&#x27;t believe they are bitching that their bailout wasn&#x27;t sweet enough. It&#x27;s ridiculous.