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Gretchen Morgenson has done it again. Her brilliant journalism now brings the A.I.G. fiasco into the light as she reveals how hard it is to fix the credit crises there:

"Derivatives are dangerous." That simple sentence, written by Warren Buffett, begins an enlightening discussion in Berkshire Hathaway's most recent annual report. Mr. Buffett's views on derivatives, gleaned from his own unhappy encounters with them, should be required reading for all United States taxpayers.

Thus starts her comparison to what A.I.G. is going through to what Buffett went through a few years ago:

When Berkshire acquired the insurance company General Re in 1998, he wrote, General Re had 23,218 derivatives contracts that it had struck with 884 counterparties.

Mr. Buffett wanted out from under the contracts and he began unwinding them. "Though we were under no pressure and were operating in benign markets as we exited," he said, "it took us five years and more than $400 million in losses to largely complete the task."

Did you catch that? Under normal market circumstances, it took five years and $400 million of losses to get out of those General Re derivatives contracts!

How does this compare to A.I.G.'s current predicament?

Some $440 billion in credit default swaps sat on the company's books before it collapsed. Its biggest customers, European banks and United States investment banks, bought the swaps to insure against defaults on a variety of debt holdings, including pools of mortgages and corporate loans.

Because of the way A.I.G. wrote its swaps, and because the company had a double-A credit rating at the time, it did not have to put up collateral to assure its customers that it would be able to pay on the insurance if necessary. Collateral would be required only if A.I.G.'s credit rating were cut or if the debt underlying the swaps declined.

Both of these "unthinkable" events occurred in 2008. Suddenly, A.I.G. had to cough up collateral it didn't have.

And guess who is now injecting that collateral into A.I.G. now? That's right: us taxpayers.

But wait, there's more!

So, you see, the rescue of A.I.G. also involved a bailout of its many customers, none of whom the insurer or the government is willing to identify.

Nevertheless, Edward M. Liddy, the chief executive of A.I.G., explained to investors last week that "the vast majority" of taxpayer funds "have passed through A.I.G. to other financial institutions" as the company unwound deals with its customers.

On Wall Street, those customers are known as "counterparties," and Mr. Liddy wouldn't provide details on who the counterparties were or how much they received. But a person briefed on the deals said A.I.G.'s former customers include Goldman Sachs, Merrill Lynch and two large French banks, Societe Generale and Calyon.

It's downright sick, this story, and just incredible that no one is going to jail. Where are the mobs shouting, "Off with their heads?"

Read the entire article because the outrage doesn't stop there...it's just incredible how big of a mess this is and how no one is going to jail. In fact, there is now news that A.I.G. is getting ready to give out $100 million in bonuses.

Can we get a little outrage over that?!!

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