It looks bad, smells worse and feels slimy, but AIG executives have been asking for this day since they partied the night away to celebrate the first of many government injections of capital to keep the "too big to fail" organization alive.
What these "bozos" did is no worse than any of the Wall Street investment bankers have done in looking out for themselves first, their families second and their Porsche lease payments third. That the AIG transgressors speak with English accents (it was the London office that masterminded the fiasco) or with Connecticut clipped phrasing is not important. The disconnect from "Main Street" is laughably tragic.
The fact that the Government is least likely to succeed at managing a business of any kind is worrisome. They screwed up the management of the Mustang Ranch outside of Las Vegas when they assumed ownership after a tax issue. If they couldn't make a brothel that served booze make money, we all have to worry if they try to manage anything more complex than a lemonade stand in the desert.
The blame should be kept separate from the solution. The blame is Hank Paulson and the deregulating regulators. Andrew Cuomo as head of HUD under Clinton bears some responsibility also but Donaldson and Cox at an SEC that allowed for the abandonment of common sense need to be fingered for sure.
A solution is to arbitrage time. Taxpayers bridge the bad paper until it is worth something and be sure the bridge loans are properly valued and that the spread on the inevitable public offering that Goldman Sachs underwrites, reflects the fees paid to that organization to keep it alive. In fact the fees that GS makes on government offerings should be gratis even if Paulson coughs up his ill gotten $700 million that he picked up during the last few years at GS.