Six Years Later, We’re Still Litigating the Bailouts. Here’s What We Know.

The obvious question, asked many times now, is why the Fed did not insist that those banks take “haircuts” on what they were owed given A.I.G.’s near-bankruptcy and government bailout. That would certainly seem like the fair course.

But the policy makers’ answer is also becoming clear: To demand haircuts from the banks would have defeated the point. The entire goal of the bailout was to avoid a default and the unpredictable ripple effects it would create. Yet to get the banks to agree to haircuts, they would need to threaten the very thing they were looking to avoid — to send one of the world’s largest insurance companies into the same kind of disorderly bankruptcy that had already enveloped Lehman Brothers.