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It's looking like the SEC/Goldman Sachs lawsuit could open up a whole new can of worms, one that Tim Geithner and some bank executives aren't likely to be very happy about. The story's about AIG and I used to work there so, as much as I like to stay out of the story, a little personal background is in order. We'll do the story first and then get to the personal stuff.

The story is this: As almost everyone knows by now, the SEC filed a suit against Goldman over a program called Abacus. The suit alleges that Goldman didn't tell Abacus investors that the bonds they were essentally insuring were being picked by a firm (Paulson) which was betting that they'd fail. Remember that Twilight Zone episode called "To Serve Man," where the aliens promised to help everybody but were really just getting ready to eat them? In this story the investors are the humans and Goldman's execs are the aliens.

The slide show Goldman used to pitch Abacus is pretty damning. It starts with so many pages of fine-print "disclaimers" and "risk factors" that it seems like a Viagra ad ("call your doctor if ..."). There's a lot in there about well-respected (but at best gullible) ACA, this firm that Goldman claimed was picking the bonds. About half of the 66 slides sing ACA's praises, but there's no mention of Paulson. There are long descriptions of ACA's capabilities, their "internal" and "external data sources," and their "defensive trading" designed to "minimize real market value exposure."

To serve man. "It's a cookbook!"

Here's where it gets uncomfortable for Geithner and some executives. Remember all that criticism of the taxpayer-funded AIG bailout, and how under Tim Geithner's direction (he was running the New York Fed then) AIG paid 100 cents on the dollar to Goldman and other "counterparties" for its debts? It turns out that AIG insured seven Abacus deals, and the debts they were ordered to pay may have included payoffs on some of these deals. It turns out that AIG reportedly wanted to pay 60 cents on the dollar, but Geither's New York Fed directed them to pay the full amount.

AIG paid $13 billion from its bailout to Goldman at Geithner's direction. And now, as the Wall Street Journal reports, the SEC "is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors." And, while "It isn't known what deals the SEC is investigating," the Journal adds that "among the firms that created mortgage deals that soon went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now owned by Bank of America Corp."

Who were some of the other counterparties paid by AIG under Geithner's direction? Deutsche Bank, UBS, Merrill Lynch, and Bank of America. This is already a big story, and it could get much bigger. None of those firms can be happy today, knowing that they're being drawn into the firestorm surrounding Goldman Sachs. And Geithner can't be happy that his handling of AIG is once again in the news. He took a beating for it back then (including from right-leaning Forbes, the self-described "capitalist tool"), and the NY Fed's eventual defense of its own actions was ineffectual. Among other things, it claimed that the counterparties' "contractual rights were well-protected."

Not if they lied, they weren't. Nobody has a "well-protected right" to enforce contracts made under false pretenses. It looks now as if the New York Fed didn't try hard enough.

It's not as if people weren't objecting at the time. Eliot Spitzer was all over the issue. Former AIG CEO Hank Greenberg, who had been forced out by Spitzer, wrote that "the federal government is using AIG as a conduit to pump massive sums to the counterparties of AIG's credit default swaps." Spitzer, along with William Black and Frank Portnoy, had a very reasonable request: Release AIG's emails from that period so we can get to the bottom of the situation. That's a good idea today, too - no matter who it might make uncomfortable.

Now AIG is considering a lawsuit to get some of that money back from Goldman. Two members of Congress want to collect the money, too. Good idea. If it embarrasses some people in high places, there's a solution for that too: They can push for aggressive derivatives reform, which is something Geithner's reportedly been resisting up to now. None of us can change our past actions, but we can all vow to do better in the future.

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I can't write about AIG without disclosing the fact that I used to be an executive there. Not that I've been hiding it - I've mentioned it in interviews and elsewhere - but I didn't cover the last AIG crisis so I never had to address the conflict of interest issue directly. Now I do, so here's the deal:

I worked for a health care company that was acquired by AIG, and wound up staying there for about seven years. I was well-liked at AIG, and I liked working there. I wasn't involved with financial products. I worked in risk management and property/casualty, focusing on workers' compensation and health issues. Then I became President of an AIG subsidiary and joint venture that did international health projects and some investment work. I never worked directly for Hank Greenberg, although I had several meetings with him and was the target of his well-known interrogative wrath at least once.

I was still working on Wall Street, though not at AIG, when "quants" became trendy and financial products really began taking off. (We had an all-Wall Street rock and roll band in those days. I still wonder what became of the keyboard player from Merrill Lynch.) Regarding financial products: Some of us thought we saw thunderclouds forming, but everyone told us that these guys knew what they were doing. It turned out there were thunderclouds.

There's a lot more to the story than that, but for now I'll just say that my opinion of AIG is this: It was a good company when I worked there. Many people found the aggressive culture hard to handle, but I didn't. (God knows what that says about me.) It had some real flaws - it was notoriously slow to pay claims, for example. Still, I had many friends there, some of whom caught undeserved flack for what the financial products people did. AIG contained many different companies, but it appears that the 200 employees of the financial products group operated by a completely different set of rules.

The insurance and risk management operations were essentially sound and well-run, and from everything I know they still are. Nobody got rich from bonuses - certainly not me. And the sooner those sound businesses can get out from under the wreckage wrought by the financial products group and its enablers, the better off everybody will be - including the American taxpayer.

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