AIG: The Search for the Smoking Gun

Three of the nation's most influential news outlets - Bloomberg, The Wall Street Journal and The Washington Post - have undertaken extensive investigations of the American International Group fiasco, specifically what caused the collapse, how did the dominoes fall, and why was the government forced - or suckered, as the case may be - into bailing it out.

The ironic part is that none of these journalistic outposts, despite all their effort and talent, has been able to find a suspect who's indictable for anything except greed and bad judgment. And if that was an indictable offense, it would have already sent most of Wall Street's elite to Club Fed.

The latest tome by the Washington Post is a prime example. It details the initially irritating and later desperate exchange of emails between Joseph Cassano, boss of AIG's Financial Products unit in London, and AIG executives in New York who feared the convoluted and esoteric accounting he used to justify taking on trillions of dollars of risk in AIG's name.

As Michael Lewis said in his Vanity Fair magazine story on the downfall of AIG, many people disliked the autocratic and know-it-all Cassano, but few, if any, thought he did anything dishonest. And the emails bear this out. What makes it even clearer is that Cassano is now living in Connecticut and never would have left the relative safety of London if his lawyers thought he would be rooming with Bernie Madoff.

What's also clear is how much in the dark AIG's top executives were, including then CEO Martin Sullivan, an amiable man who still believed in February 2008 that everything was just fine.

If there is a villain in the story, it is AIG's trading partners, and, in particular, Goldman Sachs. Goldman's sin was the opposite of AIG's. It was having the intelligence to understand that the crisis was brewing, and the rapaciousness to push AIG over the edge. "Trading partners smelled blood in the water, and collateral calls came in," says the Post's piece.

Goldman was also smart enough to have friends in high places when the crash came. AIG's $182 billion bailout was negotiated by Stephen Friedman, chairman of the New York Federal Reserve and former CEO of Goldman Sachs, who then bought more of his former company's stock, according to Bloomberg. It was also done under the aegis of Treasury Secretary Henry Paulson who was, you guessed it, another former Goldman CEO. The payoff: Goldman got more than $12 billion in taxpayer funds it was owed by AIG.

So, was anything illegal? If it was, the media and - so far - the prosecutors have been unable to prove it.