Empty Creditors

There is an interesting article in Slate.com by Daniel Gross on "The Scary Rise of the 'Empty Creditor'.  "

The take-home lesson here is that because of credit default swaps (insurance policies for lenders in case their customers can not make good on their loans) and other new-age financial instruments, creditors stand to lose a lot less if the distressed financial institutions to which they lent money go into bankruptcy.  Thus, creditors do not want to negotiate and will actually try to push debtors into bankruptcy.

But if you think about it...who is the insurer for a lot of this debt?  AIG.  The same company that received more than 150 Billion dollars in bailout money from the U.S. government.   So...really...the U.S. government has provided insurance for a lot of Wall Street financial institutions (ex. Goldman Sachs) to make risky investments. 

So...our tax money is going to helping AIG to make good on its insurance obligations so that it becomes even more difficult to extract ourselves from this economic mess.  The solution that makes sense to me is for the government to take control of all the distressed banks and unravel all of their convoluted relationships with one another.