Tigerhawk has a wonderful analysis of the AIG situation. Read the whole thing, but two paragraphs stand out:
As applied to AIG, the word “bailout” is losing its meaning. The common equity is destroyed, so the owners of the company — the people normally bailed out in a bailout — lost everything (as well they should have). Lots of people have lost their jobs. It is actually a company in a form of (orderly?) non-bankruptcy liquidation or receivorship. The countless billions pumped into AIG since the fall have gone right back out the door to pay creditors of AIG, many of which are big financial institutions that would have taken much larger losses (and needed more capital from some source, probably the government) if AIG had defaulted. From this perspective, AIG is nothing more than a conduit for the government to distribute money to financial institutions without making new investments in them. Whether that is a bug or a feature depends on whether you want the government to own much larger stakes in all these companies, but this much is difficult to refute: The “bailout” in question is not of AIG, but of the counterparties of AIG. …
The salient feature of the late credit bubble was a massive shift in bargaining power from lenders to borrowers, all of whom pressed for lower pricing and looser covenants. It was borrowers who were “greedy,” from real estate developers to private equity firms to hedge funds to consumers who bought houses and cars they could not afford. Politicians and journalists who say otherwise are being ignorant or disingenuous, even if predictable.
There’s a condition called petroposia, a word coined by one writer to describe the drinking of gasoline by people dying of thirst in the desert beside their stalled cars. Drinking gasoline of course, only makes things worse. But heck, it feels good — for a second. Someone should coin a word for the urge to borrow more money in order to meet a mounting credit obligation. How about “bailout”?