I don’t know about those claims that the amount of liquidity needed to recreate the market is closer to $5 trillion than $700 billion, but I’m not sure the latter is enough to cover the actual amount of risky, “toxic” assets in all these financial institutions, either.
AIG is asking for this money because they were hit up to give back cash by investors – the original loan from the federal government was to just get them on their feet. This was like a big right hook immediately after getting up before the count reached 10 on the previous knockdown. I don’t think that’ll happen with the $700 billion – presumably banks aren’t going to immediately lend to borrowers with bad credit and use inappropriate lending terms in the process all over again. But, again…is $700 billion enough?