Well, he’s in thick as thieves with some mighty crooked public figures, so as far as I’m concerned it’s open season. It was his unit and his shady doings that ultimately brought down the whole shebang.
In all likelihood you are 100% correct.
However, we should not help provide cover for politicians - which is what this ABC story is doing.
I saw no mention of Dodd or of Frank or of the laundering of USD 170 billion through AIG. Lets keep out attention on the politicians. Private individuals like this guy will be prosecuted to the full extend of the law. People like Dodd and Frank, who are just as guilty or even more, manage to avoid attention.
The mortgage credit bubble is what brought the shebang down, and Bear and Lehman and AIG played with the fire and burned themselves and others.
People don't seem to grasp the magnitude of the residential mortgage bubble - the US home ownership rate, which was stable for generations, changed from 66% to 70%. That may not seem like a big percentage, but in the context of the gargantuan residential mortgage market, that is huge amount of value. And in certain demographics, the swing was much bigger. Of course the creditworthiness fundamentals of the American population didn't improve, and in my vew grew weaker over this time, even as there was a huge increase in mortgage borrowing. This was an affirmative action housing bubble, in which politicians decided that any deadbeat or flipper should own one or more expensive homes in the name of equality, and quasi-government Democrat slush funds called Fannie and Freddie pushed the process as hard as possible.
Bear and Lehman were big players in the mortgage securities arena, held a lot of these securities themselves and got burned when the bubble popped.
Credit default swaps do not create risk as people seem not to understand -- the risk was created with the worthless bubble mortgage securities -- but they allocate the risk between parties. The European banks invested heavily in the toxic mortgage securities, and AIG stepped in and, for a fee, took that risk away from the European banks, instead substituting AIG's (then) sterling credit, allowing them to present higher quality regulatory capital on the banks' books.
The magnitude of the shift in risk can be glimpsed in AIG’s 2007 year-end annual report: “Approximately $379 billion of the $527 billion in notional exposure on AIGFP’s super senior credit default swap portfolio as of December 31, 2007 were written to facilitate regulatory capital relief for financial institutions primarily in Europe.”
So when the bubble popped in the mortgage market, and it became clear that AIGFP had bet the entire AIG company on the US mortgage market, a hole became apparent in the solvency of the European banks to the tune of hundreds of billions of dollars. And that is just counting the CDS portfolio, not ALL of the trades AIG had with the European banks. If AIG had gone under who knows how big the hole in the European banks would have been, a half trillion dollars? Massive bank runs, failures and nationalization of the major European banks.
The principal economic effect of the AIG bailout was a second Marshall plan for the banks of Europe, although of course there were other important counterparties as well. But don't expect any thanks from the Europeans for keeping their banks safe from the failure of the mortgage securities market.