>>So you're saying you would have the same reaction if it were the Republicans pushing this policy.
>>
>>Ok, let me ask you this. How would YOU solve the issue?
>
>Let the companies that have demonstrated their inability to function die.
>
>Let the people who have demonstrated their inability to make sound financial decisions reap their rewards.
>
>Let the government make sound financial decisions (read thet - live within its means).
>

When Bush, Paulson, and Bernanke provided Fed assistance and bailouts to Chase (for buying Stearns in march08), Fannie & Freddie (in July08), and AIG (in Sep & Nov'08), help for Wachovia in Sep08, and the $700 Billion TARP bill of '08, they must have viewed the debacle as systemic. They too were in with both feet.

AIG is interesting due to its ties with EU banks. US taxpayers saving EU banks (and Goldman Sachs) apparently. Hooray.

http://paul.kedrosky.com/archives/2008/09/30/how_the_us_save.html

The K-10 annex of AIG’s last annual report reveals that AIG had written coverage for over US$ 300 billion of credit insurance for European banks. The comment by AIG itself on these positions is: “…. for the purpose of providing them with regulatory capital relief rather than risk mitigation in exchange for a minimum guaranteed fee”. AIG thus helped to organise regulatory arbitrage on a gigantic scale. A formal default of AIG would have had a devastating impact on banks in Europe. This explains why AIG’s problems had sent shock waves through the share prices of European banks.

http://www.nytimes.com/2009/02/28/business/28nocera.html?_r=2&pagewanted=all

If we let A.I.G. fail, said Seamus P. McMahon, a banking expert at Booz & Company, other institutions, including pension funds and American and European banks “will face their own capital and liquidity crisis, and we could have a domino effect.” A bailout of A.I.G. is really a bailout of its trading partners — which essentially constitutes the entire Western banking system.

http://www.iht.com/articles/reuters/2009/03/01/business/OUKBS-UK-AIG.php

"The government really does not have the option of letting AIG totally blow up," said Robert Haines, senior insurance analyst at CreditSights. "Hopefully, the third bailout will be the charm," he said. "The counterparties on most of the book are (European) banks that would be hammered if the U.S. walked away."

By hammered, large banks across Europe would fail and their failures would lead to more failures.... so goes the rationale. But at this point it would be interesting to hear the ramifications of going that route. But that would be speculating on a lot of unknown unknowns. Its certainly careful-what-you-wish-for territory.