Enorah, AIG took hundreds of billions of dollars from people in return for a promise to pay them something back (like the retirement income from an annuity, or the death benefit from a life insurance policy, or compensation for losses under a home insurance contract, or..). And, yes, some of the contracts AIG made were credit default swaps with hedge funds and other banks etc.
If they fail to make those payments, regular customers will be very angry – and they vote – and more hedge funds and banks and other institutions will lose another fig leaf covering their bankuptcy.
