[absherwin]

This completely ignores the perspective of those who bailed-out AIG. Whether their ultimate assessment of the ramifications of AIG's bankruptcy was correct (Which is important to understand for future crises) they feared the collapse of the financial system.

Bair's question: "Were the others really in danger of failing?" seemed obviously true to everyone involved in the crisis at the time. When AIG failed, Lehman had just declared bankruptcy and overnight lending rates between banks had sky-rocketed. Washington Mutual and Wachovia were on the brink of failure. Goldman and Morgan were both sufficiently dependent on the short-term funding markets that they could have been rendered illiquid next.

Looking in from the outside, it's easy to see this as insanity. All they needed to do was trust each other and most of the institutions would have been fine. But they lacked sufficient transparency to know which wouldn't be. While we can all imagine better solutions, making those things happen takes time. Put yourself in Bernanke's, Geithner's and Paulson's shoes. You can do something that will lead to be pilloried in the press or risk watching a repeat of the great depression with some probability you can't estimate.

[astazangasta]

The other perspective (mine) is that everyone of these 'institutions' should have failed. These were poisonous organizations, criminal parasites. We would all be better off had we simply allowed them to burn to death in the fire of their own making. Then we rebuild our financial system in a way that makes sense, devoid of the influence of the criminals who caused all the trouble.

[occamrazor]

There are two problems with this course of action:

1. Companies depend completely on an efficient credit infrastructure. They buy on credit even more than consumers. Shutting off the financial system, even for a short time, effectively means shutting off production.

2. To rebuild the financial system one needs domain expertise. The people with the expertise are those who work in financial institutions. Purging the elites has never worked (E.g. Mao and the Cultural Revolution, the US in Iraq, Mugabe, ...)

[api]

#2 is a very important principle that spreads across all kinds of areas and domains. The top of the pyramid almost by definition tends to monopolize domain-specific talent, therefore the only revolutions that ever work are those that convince the elite rather than those that purge them.

Luckily elites are just human beings, not shape-shifting reptiles from space, and can be convinced with rational arguments and/or human empathy in the same way and to the same extent anyone else can.

[Terr_]

Who said the experts would be literally murdered?

The expertise would still be around, and companies -- possibly new ones -- could still hire them for any positive contributions they believe could still occur. They'd just have lost (arguably with great karmic and ethical justification) a portion of their fortune and power.