The story that AIG HAD to be rescured to save the global financial system is a fairy tale, told by idiots.

http://tinyurl.com/yhfqdl4
The Latest AIG Story Regulators can't agree on what the real systemic threat was.
Will regulators ever coherently explain why AIG could not be allowed to go bankrupt in September of 2008? At yesterday's House hearing, Secretary of the Treasury Timothy Geithner and predecessor Hank Paulson said they didn't bail out AIG to save its derivatives counterparties. Instead, said Mr. Geithner, the now-famous 100-cents-on-the-dollar buyouts of credit default swap contracts were necessary to prevent a further downgrade of AIG by credit-ratings agencies. ****If the loan sharks, to whom Joey is in hock, learn that his rich uncle has paid off some of his debts, they might not break his knees but they still won't lend him any more money. That is, it's a charade that you could fool the rating agencies this way ( not that they couldn't fool themselves, of course.)****This topic probably deserves another hearing on its own. Remember, the Federal Reserve Bank of New York, where Mr. Geithner was president, had by that time already seized AIG. We're guessing that a ratings agency is pretty comfortable with the creditworthiness of a firm 79.9%-owned by Uncle Sam. Yet Mr. Geithner is saying that the same credit raters that applied triple-A ratings to tranches of junk mortgages somehow got the yips when the world's most respected borrower was standing behind AIG.
If the agencies had applied to AIG the credit rating of its new owner, there wouldn't have been much need to send more collateral to such counterparties as Goldman Sachs. Instead, AIG could have demanded the return of some of the collateral it had already posted. Bad news for those counterparties... ****No one has pursued the rumor that the French Finance Minister called Secretary Paulson in a panic that Societe Generale would go down if AIG defaulted. This would be another argument that it was the counterparties that Paulson et al were concerned about. The new story that it was the insurance funds that would be imperiled by AIG's default was not only gainsaid by the New York Insurance Commissioner, Eric Dinallo, whose job it was to oversee the security of reserves required to back insurance policies, but it could not be otherwise. That's what insurance regulation is all about. Warren Buffett uses his insurance companies as the base for his investments but NOT in the way that Paulson et al seem to be claiming. Would you believe....?****