Here’s The Washington Post’s idea of debate on AIG:

The leadoff contributor to the op-ed page’s ‘”Topic A” section is former AIG CEO Maurice Greenberg, who was forced out of the firm in 2005 amidst a fraud investigation that (mostly) ended without charges.  Greenberg argues “the Obama administration should allow AIG to rebuild itself and earn the money necessary to repay the taxpayers.”

What The Post doesn’t say is that that Greenberg has a hefty financial stake in the issue. According to Bloomberg, Greenberg has filed suit against his former company charging that its  “material misrepresentations and omissions” caused him to acquire New York-based AIG shares in his deferred compensation profit-participation plan at an “artificially inflated price.”

Edward Liddy, the current AIG CEO and Capitol Hill flak catcher, told Bloomberg that “Greenberg was at the helm during the formation of AIG’s financial products unit, which sold derivatives that cost the company more than $30 billion in writedowns and prompted a government rescue.”

So Greenberg, identified by The Post only as “a former AIG executive,” is offered as a reliable guide to cleaning up the mess he helped make. And The Post does not disclose his financial stake in his policy advice.

The Post also offers AIG commentary from Douglas Holtz-Eaken, the former Congressional Budget Office official and economic adviser to Sen. John McCain’s 2008 presidential campaign. Holtz-Eaken argues that “no matter how bad you think market capitalism is, the federal government has proved it is worse.”

Is it relevant that in 2006-2007 Holtz-Eakin headed the Maurice Greenberg Center for Geoeconomics at the Council on Foreign Relations, a perch created by the largesse of the former AIG chairman? Yes, it is relevant for two reasons. First, CFR has dropped Greenberg’s name from the Center’s Website (though “Greenberg” lives on, ghost-like, in the URL). Perhaps the establishment talk shop wants to avoid the appearance that Greenberg was buying influence into the foreign policy-making elite. Second, Holtz-Eakin is one of those clueless commentators who didn’t see the crisis coming even though he lived in the orbit of one of its architects.

There was  a third point of view in Topic A, that of William Seidman, a former economic adviser to Presidents Ford and Reagan, who headed the government’s savings and loan rescue in the 1980s and now does commentary for CNBC. Seidman says the lesson of AIG is that the government should proceed slowly.

This is the AIG debate in Washington’s paper of record. It covers a small slice of the center-right, ranging from the the self-interested to the clueless to a talking head, all the while excluding the numerous economists and analysts who warned about the dangers of the bubble economy. If this is the way AIG is discussed, is it any wonder Washington seems unable to coherently address the financial meltdown?

AIG Tower, Hong Kong (flickr: Marc Oh!)

Three weeks after the Federal Reserve threw an $85-billion lifeline to the American International Group, the Fed gave another loan Wednesday to the world’s biggest insurer. This extra money could total $37.8 billion. An AIG spokesman said the second lifeline is necessary to deal with an “extraordinary situation in the markets.”

Former company CEOs insisted at a congressional hearing this week that it was these larger market forces, rather than any decisions made by executives, that caused AIG to unravel.

Neither Martin Sullivan, who ran the company from 2005 to 2008, nor Robert Willumstad, his successor who was fired a week before AIG’s government bailout, admitted any misjudgment or apologized for any company decision. These included giving a $1-million-a-month consulting job to the executive most responsible for the company’s collapse.

Asked how AIG got into such dire financial straits, Sullivan and Willumstad both blamed a “financial tsunami” beyond their control. When questioned about the company’s decision to rely so heavily on the secondary mortgage market, the source of AIG’s principal troubles, each CEO pointed the finger at the other.

The AIG hearing, held Tuesday by the House Committee on Oversight and Government Reform, was the second of five scheduled House oversight hearings into the financial crisis. The first, on Monday, probed the collapse of the investment bank Lehman Bros., whose bankruptcy filling on Sept. 15 may have ignited the credit crisis. At that hearing, CEO Richard Fuld Jr. infuriated committee members by portraying Lehman as a victim of what he also called a “financial tsunami.”

Illustration by: Matt Mahurin

The stated purpose of the hearings is to determine what the federal government can do to monitor the historic financial bailout bill, that became law last Friday, and prevent another crisis.

What distinguishes the hearings so far is the lack of contrition on the part of the financial-services executives testifying before the committee. They have deflected questions from both Republican and Democratic representatives, who seem equally infuriated about the crisis.

“It seems you have these company’s cultures and then the larger culture,” said Rep. John Sarbanes (D-Md.) during the Lehman hearing. “In June 2008, Richard Fuld actually said Lehman was doing well.

“What happens to make him think he can make such statements?” Sarbanes continued, “Is it the parties he’s going to? Is it the analysts who got paid to say he’s doing a good job?”

This line of questioning continued during the testimony of AIG’s Sullivan and Willumstad.

“Do you acknowledge that you are part of what triggered the financial tsunami?” Rep. Mark Souder (R-Ind.) asked the CEOs. “Do you bear any responsibility? You said you were making profits, but you had a shell [unit] that was anchored in less than secure mortgages. Why weren’t you warning your stockholders?”

“It’s not just us,” Sullivan responded. “The U.S. is in a financial Pearl Harbor.”

Former AIG CEO Martin Sullivan (flickr)

Nonetheless, Sullivan made decisions that would be a stretch to blame on overwhelming market forces. AIG has 116,000 employees in 130 countries. But it was AIG’s London-based Financial Products office, with 377 employees, that brought the entire company down.

By 2007, Joseph Cassano, head of that London office, had built a $500-billion portfolio in a mortgage-market derivative called credit default swaps — essentially insurance policies for bonds and loans. But Cassano never backed these assets with either capital or collateral.

As the mortgage-backed securities markets collapsed, it became clear that the credit default swaps insuring them were losing value as well.

The Treasury Dept. became alarmed. In a Mar. 10 letter to AIG, made public Tuesday, the Treasury’s Office of Thrift Supervision said that the failure to monitor AIG’S financial products constituted a “material weakness within corporate management’s oversight.”

The next day, March 11, Sullivan fired Cassano. But he handed him a $1-million-a-month consulting job. The only caveats were that Cassano would not take work with other companies and that Sullivan could terminate the contract on a monthly basis.

Even as AIG reported further losses, Sullivan did not end the relationship with Cassano. Sullivan’s successor, Willumstad, also kept him on.

“Why didn’t you fire Cassano?” Rep. Henry A. Waxman (D-Calif.), chairman of the oversight committee, asked Willumstad at the hearing. “This is the man who went out on his own and made the derivative deals that brought down AIG.”

Illustration by: Matt Mahurin

“During the unwinding of the company,” Willumstad replied, “you want to make sure you retain the intellectual knowledge of the key players.”

Strange as that may sound, consider this. In March 2008, Sullivan successfully lobbied the board to change AIG’s executive pay system in a way that would give him greater compensation.

Sullivan wanted the performance pay of 70 executives, including himself, not to “reflect the extraordinary market conditions” that he viewed as leading to AIG’s 2007 losses. So the board’s compensation committee decided to average the company’s 2007 losses with its spectacular gains from 2005 and 2006.

Sullivan reportedly received a bonus this year of close to $5.7 million, which is what he received in 2007. He told the oversight committee he has no plans to return the money.

The most embarrassing decision brought to light Tuesday was the weeklong, company-paid vacation for some high-performing insurance agents at the St. Regis Resort, in Monarch Beach, Calif., after the government bailed out AIG. The cost was $440,000, including a $23,000 bill for for spa services.

On questioning, Sullivan and Willumstad said that the vacation would not have happened on their watch. Both had left the company before the agents were feted.

As for the reasons behind the collapse of AIG, Willumstad blamed the company’s credit default swaps, which were started when Sullivan was CEO. Sullivan, for his part, largely fingered Maurice Greenberg, AIG’s founder and CEO from 1969-2005. Greenberg had said he was too sick to appear before the committee. But in written testimony, he largely blamed Sullivan.

On Monday, Lehman CEO Fuld also passed blame to someone else. “What happened to Lehman Bros. could have happened to any firm on Wall Street,” Fuld told the committee. “Lehman was a casualty of the crisis of confidence.”

But committee members were unsympathetic to this argument, focusing on the compensation that Fuld and other Lehman top executives received. “You [Fuld] made $480 million over the last eight years,” Waxman said to Fuld. “Is that fair?”

Waxman kept repeating the question, and Fuld kept deflecting it by contesting the accuracy of the $480-million figure. He said he earned less, closer to $350 million.

The committee wrapped up its two days of hearings Tuesday by firing off a letter off to Treasury Sec. Henry Paulson Jr. about excessive executive compensation at AIG.

Over the next two weeks, Waxman plans hearings on hedge funds, credit-rating agencies and — in all likelihood — Fannie Mae and Freddie Mac. The final hearing, scheduled for Oct. 23, will look at the role of federal regulators in policing Wall Street.

If the hearings go as planned, lawmakers will progress from excoriating Wall Street executive to figuring out what they — and the Bush administration — did to enable their behavior.