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BBB tranches with an average of 29 percent subprime in the original residential mortgage-backed securities portfolios. AIG claimed most of this was 2005 vintage and therefore not as suspect as loans originated in 2006 and 2007. Even though the super senior originally had a 36 percent cushion, a significant portion of the cushion could be eaten through (in some of my probable scenarios and in other scenarios, all of it) and that should have been reflected in an accounting loss. Even if AIG did not believe that there would be any ultimate principal loss, the price what it protected had declined which should have shown up in a mark-to-market loss. By August 2007, the prices of BBB rated tranches of residential mortgage backed securities deals tanked. Since AIG was writing protection on the super senior (ultimately backed by that collateral), it would have shown a loss.

3 U.S. Department of Justice, “Former Gen Re and AIG Executives Found Guilty on All counts of Fraudulent Manipulation Scheme,” Press Release #80-141:02-25-08.

4 David Reilly, “In Subprime, AIG Sees Small Risk; Others See More,” Wall Street Journal, 13 August 2007. AIG is a multinational conglomerate doing business in aroudn 130 countries. AIG has insurance operations (life, property, casualty, retirement products, commercial), and manages investments related to its insurance obligations.The insurance business is supposed to be separate and regulated (by state regulators), but at one point, AIG (at the holding company) was given permission to have its insurance operations provide a bridge loan to AIG’s financial products operations—another unprecedented move by regulators. AIG’s finacial operations act as a credit derivatives counterparty (primarily selling protection) on mortgage products, corporate risk and other assets. AIG also has assests such as International Lease Finance Corporation (ILFC, which leases aircraft), among other valuable assets.

5 Ibid

6 Amir Efrati and Liam Plevin, “SEC, Justice Scrutinize AIG on Swaps Accounting,” Wall Street Journal, 6 June 2008.

7 Liam Plevin, “AIG’s Board Now Comes Under Fire of Dissidents (online title: “AIG Holders Add Change in the Board to Demands”)” Wall Street Journal, 12 June 2008.

8 Amir Efrati and Liam Plevin, “SEC, Justice Scrutinize AIG on Swaps Accounting.”

9 Charles Duhigg, “At Freddie Mac, Chief Discarded Warning Signs,” New York Times, 5 August 2008.

10 Gretchen Morgenson and Charles Duhigg, “Loan Giant Overstated the Size of Its Capital Base,” NewYork Times, 7 September 2008.

11 Mark Gilbert, “I Spy More Road Kill on the Credit-Crunch Highway: Mark Gilbert,” Bloomberg News, 21 August 2008.

12 Jay Yarrow, “Bill Gross Cashes in on Fannie Freddie Bailout,” The Business Sheet, 9 September 2008. The Pimco Total Return Fund had over $130 billion in assets at the end of June 2008.

13 “Fannie Mae and Freddie Mac removed from S&P 500,” Associated Press, 9 September 2008.

14 James R. Hagerty, Ruth Simon, and Damian Paletta, “U.S. Seizes Mortgage Giants,” Wall Street Journal, 8 September 2008. (Mr. Moffett’s affiliation with the Carlyle Group was not reported in this article but was available on the Carlyle Group’s Web site www.carlyle.com with his biography as one of the Carlyle team.) Richard Syron’s Freddie Mac exit package was estimated at up to $15 million; Daniel Mudd’s Fannie Mae exit package was estimated at up to $14 million.

15 Gregory Mott, “Dodd Plans Senate Hearing on Fannie, Freddie Takeover,” Bloomberg News, 8 September 2008.

16 Hugh Son and Shannon D. Harrington, “AIG May Disclose Its Strategic Review Before Sept. 25 Deadline,” 13 September 2008.

17 Hugh Son, “AIG Seeks Loan from Goldman, JPMorgan as Fed Resists,” Bloomberg News, 15 September 2008.

18 Christine Harper, “Goldman Net Drops 70% as Merger Advice, Trading Slow,” Bloomberg News, 16 September 2008.

19 Erik Holm and Christine Richard, “AIG’s Collapse Would Have Impact Around the Globe,” Bloomberg News, 16 September 2008.

20 Matthew Karnitschnig, Deborah Solomon, and Liam Pleven, “U.S. Plans Rescue of AIG to Halt Crisis;