WSJ: AIG Still Isn't Too Big to Fail

Finally, someone who has the audacity to question the systemic risk concept and the necessity of government intervention!

"But there is far too little debate on the government's willingness to back all of AIG's obligations."

"Letting AIG's derivative counterparties take a significant haircut, however, should not lead to such a crisis. AIG's obligations are to derivative counterparties, not to depositors." Why should the government bailout counterparties such as Goldman Sachs. These are not depositors. These counterparties took risk and must accept the consequences of their risk.

"At a minimum, the government should conduct "stress tests," estimating potential losses in alternative scenarios, and formulate a policy on the magnitude and fraction of derivative losses it would be willing to cover. A policy that doesn't fully back AIG's obligations should be seriously considered." What an excellent idea to balance the interests. A blanket coverage of AIG obligation is not only ludicrous, it is expensive.

http://online.wsj.com/article/SB123751263240591203.html