Unsurprisingly, resources get best allocated to what most people actually care about when people get to individually allocate their own resources.
The AIG bailout was emergency spending to prevent economic collapse. It wasn't an ongoing policy initiative. You can argue over whether it's effective or efficient but it's not anything like the cancer budget. That's like saying that, because of the aid after Katrina, building housing and infrastructure on the Gulf Coast is a policy priority.
Yes, there are ways the government could have mitigated or prevented both of these disasters (funding upgrades to the New Orleans levee system, doing a better job at regulating the finance industry, not encouraging homeownership), but you can't compare priorities by comparing emergency spending to ordinary spending. Remember, Congress is incompetent, not evil. They probably didn't anticipate that trillion dollar bailouts would be part of the cost of their policies.
There are plenty of government policies (I count agriculture, defense, and healthcare) that seem designed to funnel taxpayer money to crony corporations. But engineering the collapse of AIG, GM, and the investment banks simply to nationalize them seems outside the competence of the federal government.
The upgrades were funded. The money was spent and the upgrades supposedly happened. The levees were inspected.
And the good people of New Orleans re-elected the govt that did this.
> a better job at regulating the finance industry,
Banking and insurance are the most regulated parts of the finance industry. AIG was regulated as both, in multiple countries.
> not encouraging homeownership
Talk to Barney Frank - he's back at it.
How many times does something have to fail before you give up on it?
Bailing out AIG (and their contract partners) was the problem. Creating an environment where bailout was even perceived as possible was the problem. Turning the US into a debtor nation via enormous government spending was the problem (in that it kicked off a number of other distortions).