Treasury Secretary On The Hot-Seat

Tim Geithner got roughed up a bit before a House oversight panel yesterday for his handling of the AIG bailout while President of the NY Federal Reserve Bank. But at a very basic level of understanding, Geithner is correct--the lawmakers who criticized him and others for not making AIG executives feel more pain fail to comprehend--or if they comprehend it, they simply ignore--the basic fact that AIG execs KNEW the government would fold and so they had no incentive to back down. This is the "too big to fail" argument, and it appears to have played itself out here. I wonder whether size matters, or complexity; my sense is that it is the interconnectedness of AIG's dealings that gave its rescue the impetus, rather than simply its size.