Why Does AIG Need Yet Another Bailout?

BY Business Desk  March 3, 2009 at 11:27 AM EDT

AIG; AP Photo

Question: Why does AIG need yet another bailout?

Paul Solman: As Joe Nocera and Frank Partnoy explained on Monday’s show, it’s all about the “counterparties.” These are the large financial institutions with whom AIG has contractual arrangements.

The fear is that if AIG goes under and thus reneges on its obligations, it will take down the counterparties and throw the financial system right back into the deep freeze it entered when Lehman Brothers was allowed to collapse. Many observers now think it was a huge mistake for the government not to rescue Lehman; that it was indeed, as the saying goes, too big to fail. AIG is bigger.