Once a company refuses to meet its full obligations to a customer, other customers will quickly find other places to do business. If we had sought to force counterparties to accept less than they were legally entitled to, market participants would have lost confidence in AIG and the ratings agencies would have downgraded AIG again. This could have led to the company's collapse, threatened our efforts to rebuild confidence in the financial system, and meant a deeper recession, more financial turmoil, and a much higher cost for American taxpayers.
This suggests that another option for saving AIG was available -- to declare the link to credit ratings in any of its contracts null and void while otherwise committing to honouring its contracts in full. It was bizarre that the same agencies who rated any old shite AAA during the bubble still had such weight as the crash unfolded. And there's another issue. As the Wall Street Journal points out, it's a tad bizarre that the ratings agencies were downgrading AIG at this stage -- since AIG was already 80% owned by the US government as a result of the initial bailout. So why wasn't it rated like the US government i.e. AAA?
So it just doesn't add up. We're not yet at Dubai levels, where the government decides to tell one particular ratings agency to F*CK OFF. But in September 2008, it might not have been a bad idea.