I can’t remember who wrote it, but some smart guy once said, “‘Capitalism’ is simply a pejorative term for ‘economic reality.’” James Bowman has a nice screed on the topic here.
The Volgi is nowhere near qualified to weigh on the AIG buyout, knowing nothing of insurance markets. In general, however, the best policy is no policy: as ’Puter said in his ‘liquidate’ post, break things up as quickly as possible, let the economically viable pieces be bought by people who can capitalize them and drop the dead wood. This is what Schumpeter called “creative destruction.” (Read the book. Preview here.) Get the government out of the way, so the process goes as quickly as possible, making the “pain” acute but brief, and avoiding moral hazard.
Otherwise, you end up like France or Japan.