AIG: not too big to fail

I had a nice chat with Bill Niskanen, chairman of the Cato Institute, while writing this editorial for the Register on the decision to offer another $30 billion in bailout money from the taxpayers to AIG, the insurance behemoth. As he put it, when the gurus say a company is "too big to fail," the proper response is that it's too big to subsidize, because it has all the leverage over taxpayers. The ironic thing is that there are pieces of AIG that are nicely profitable, but it got caught up in exotic secondary mortgage market instruments like Fannie and Freddie (which should be cut up into little pieces and sold to the private sector instead of being given another $200 billion to squander).