The Real AIG Scandal: How the Game Is Rigged at Wall Street's Casino

There's nothing like a grandstanding member of Congress to deflect attention from the real issues at hand by throwing a few juicy bones to the masses.

Most legislators at a House Finance subcommittee hearing last week deftly avoided the real story of AIG's collapse. Instead, they homed in on the public relations disaster of hundreds of top AIG officials and staff getting $165 million (later revealed as over $218 million) in bonuses.

The key issue ignored by the congressmen and women was the potential catastrophe represented by as much as $2.7 trillion in AIG derivative contracts and how AIG and the U.S. government are dealing with them. To put that number in context, we've so far provided the company only about $170 billion.

An exception at the hearing was Rep. Joe Donnelly, D-Ind., who declared that "naked credit default swaps" were little more than "gambling ... dreamed up" by Wall Street to create additional profits, and he suggested that instead of being bailed out, "when the casino goes bust, the guys who are gambling close shop."