Almost everyone I've ever spoken to in Hank Paulson's old Treasury Department agrees that without the immediate panic caused by the Lehman default, the government would never have agreed to make the loans needed to save A.I.G., a company it knew very little about. In effect, the Lehman bankruptcy caused the government to panic, which in turn caused it to save the firm it really had to save to prevent catastrophe. In retrospect, if you had to choose one firm to throw under the bus to save everyone else, you would choose Lehman.

So writes Joe Nocera in the NY Times.

One might suggest that it was the government's business to know everything it could about A.I.G., one of the largest financial intermediaries on the planet and the biggest of the "too big to fail" institutions. But that is another discussion.

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