Late tonight, AIG was given an $85 billion emergency loan. It also looks like the US government will effectively nationalize the insurance company, taking an 80% stake.
This would really make Adam Smith ticked off. Loan guarantees in the past for corporate giants didn't involve a federal takeover -- the Chrysler situation in 1979, for instance. And this isn't like auto insurance which is nationalized in BC, Saskatchewan, and Manitoba; and to a lesser extent Québec (for personal injury benefits); and where a co-operative approach, like public health insurance, benefits everyone. The life insurance market relies on a competitive market which ensures lower prices across the board; and giving the world's biggest government a stake creates an unfair advantage.
AIG may be "too big to fail," but this sets a really dangerous precedent, and it will be Obama or McCain that will take the flack if this backfires.
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