peter schiff tells it like it is, page-7

Yes they do. The debt will mature over the next five to six years and can be sold on for 10 to 25 cents in the dollar. The rumour mill is in overdrive that the Oracle from Omaha himself will preside over the fund's sales. This will be confirmed soon. Worse case, the taxpayers can manage a marginal augmentation in tax rates to handle the $1 trillion bill. Recession, yes. Depression, no.

Or, woud you like Fan. Fred. and AIG's debt to simply default?

So it's either bad, or really really really bad. I prefer the former.