I understand the subtle temptation. The same government that ignores the struggles of the poor, refuses to consider the need for universal health care, and wants to privatize the security of our seniors suddenly is rescuing giant corporate behemoths. The panic that exists on Kos sounds a lot like what the crazy loon Senator Bunning of Kentucky said today.
The Federal Government did not bail out AIG. It did not rescue the risk taking, greedy stockholders of AIG. It got the best deal it could to keep the underlying company going, while taking as much value as it could from the shareholders. For one thing, it is paying 12%! interest on the money.
This is not a "where does it end" question. The issue is where does it begin. Underneath all of this lies a fundamental problem. We have a mortgage crisis. That is, because of several conflating problems, we suddenly have a shriveling up demand for housing in this country. The roots are big: subprime, speculative investing, oversupply, impossibly loose credit, predatory lending practices, etc. But whatever the roots, the symptoms - foreclosures are the big one - have began to infect the overall market.
But we are not a laissez-faire nation, and let's not become a laissez-faire party. In its most basic approach, Keynesian economic theory that grew out of the last depression teaches us that an economic downturn can overreact, shrinking the aggregate demand for goods down below what is possible, considering the economic conditions.
This is why Greenspan and Bernanke could never have fit in the pre-1929 mindset. Because one of the ways that you can keep demand going is to provide stimulus. Lowering interest rates make cash flow easier and increase demand. Keynes also promoted direct government spending.
FDR proved that both work. All the 1970's proved was that lowering interest rates on its own cannot fight external inflation caused by non-economic (geo-political) circumstances. The Republicans railed against it, demanded less government, and then increased government domestic spending, even under Reagan.
Todays situation is no different than these other economic situations. What is different is that no amount of cash stimulus is going to spend people that cannot afford houses into buying up the glut. Not when some of the artificial conditions that existed are gone (interest rates, availability of 100% loans, etc). The government is acting here not to save a company. They are spending/investing our tax dollars to ensure that the overall capital markets do not collapse.
There's going to be time for regulation. Most business people would prefer the steady growth of a fairly regulated system that allows for risk, but does not allow companies to leverage the economy to the point of collapse. Before FDR, the laissez-faire economic attitude led to a string of booms and busts, led to several depressions. The steady hand of government regulation includes intervention. The risk takers will be punished (the obscene absence of CEO severance package reform not withstanding). But the government HAS to intervene. Mark Vitner from Wachovia put it well:
“If the weakness in the financial system begins to impede the ability for good-quality borrowers to borrow money, then deals don’t get done, expansions that were planned don’t happen, companies begin to horde capital, they put off hiring, they put off expanding, and it just caves in on itself.”