Too Big to fail

Perhaps I'm an idiot.  I thought we lived in a country with a capitalist economy that supposedly encouraged competition among businesses.  This allegedly gives consumers a benefit--the more choices, the better the pricing and the better the quality.

Yet my government is telling me that there are organizations that need to be bailed out because if they failed it would be catastrophic.  How is this possible?  If AIG failed, there are hundreds of insurance companies that would kill each other to try and gain the market share.  The same for the car manufacturers.  The car manufacturers are more about national pride--we don't want to lose U.S. auto making--so don't make it about jobs and money.  The foreign companies would just enlarge their foot print in the U.S.  Many of them already have plants in the U.S. and employ non-union U.S. workers.  So if U.S. parts suppliers were no longer supplying parts to U.S. auto companies, guess who they'd have to supply parts for?  It's like if you imported Coffee and Kraft (or Quaker Oats/Pepsi or whoever) decided they were gonna get rid of Maxwell House--you'd sell coffee to someone else!  That's the way capitalism is supposed to work!

Businesses fail ALL THE TIME.  What happens as a result?  NEW BUSINESSES or BUSINESS GROWTH.  Andersen begot Monroe Street Partners, while KPMG, Grant Thornton and Toilet and Douche got bigger.  TIG begot SUA.  Datsun began Nissan.  Within 10 years, there will be companies to replace Circuit City, Linens and Things, and any and all of the other companies that have failed in the last year.  Or Bed Bath and Beyond and Best Buy will expand market share.  That's what's SUPPOSED to happen.

Meanwhile don't tell me that companies are too big to fail.  Sure AIG is a global conglomerate that underwrote several of the securities that are being blamed for our current financial situation.  And because we know those securities are worthless, no one will underwrite them anymore.  When you buy car insurance, the pay out for the car if it's totaled goes down the longer you have the car; why shouldn't the pay out for securities be the actual value of the security?  In understand insuring one's investment, but this is ridiculous.  AIG is still paying people, meaning they took all the risk while the investors had none (because they were insured with AIG).  Minus that retardedness, CNA, Metlife, Allstate, Nationwide, etc. would line up to underwrite the rest of AIG's business.  The worst that would happen?  The investors holding policies against bad assets don't get paid--which is what would happen had they just bought a bad stock or invested in Maddoff.