As this Washington Post report here documents, probably the first of many to come, AIG internally began to doubt as early as 2007 the risk profile of its own derivative products put on by its derivatives unit based in London. Yet, all the time the company presented a "don't worry" united front to the public until the dam broke.
The most pertinent and interesting issue raised by this report is this: when does incompetence or wishful thinking at AIG cross over to become criminal? In other words can we charge the principals with a crime when they were being merely stupid?
Lawyers will have a field day on this.
I am no lawyer. I do know when I park at the wrong place even though I didn't know it was illegal, I violated a law and have had to pay a fine. Ignorance, I am told time and again, is not an excuse to do something illegal.
If I killed a person without knowing what the heck I was doing, I would be charged with manslaughter or else plead insanity. If I were a teenage geek hacker having fun breaking into a Federal government server, maybe even the Pentagon's, I would be hauled into prison even if I were a certifiable red neck patriot ready to die for my country anytime of the day.
So, I guess if I were to play with the shareholders' money and then burned billions, the court would find me innocent as long as I had "agonized" over my strategies as the court did with 2 hedge fund managers let free? And if that were a precedent the responsible AIG guys would also be able to continue to enjoy their already received multi-million dollar compensations in their retirement in the south of France. It pays to be incompetent on Wall Street, it seems.
Interesting issue for a good law school.