Thanks DannyC for that remakable Taibbi primer. But:

"When investment banks write CDS deals, they hedge them. But insurance companies don't have to hedge. And . . . AIG did[n't]."

That . . . just . . . doesn't . . . sit . . . right.

I can't say what's wrong, but I keep coming back to that point. I think something - something big - is missing in relation to those two sentences.

I understand that they were essentially unregulated, but this is the world's largest insurer with a long, long history. It employs uncounted actuarial and risk geniuses. Insurers set reserves as job 1. Sure, it's a regulatory requirement, but to think they would lose total control over risk concepts, like an unsupervised kid drinking himself to death on Coca-Cola, is just, well, too hard to swallow.

Similarly, going to town insuring people or entities with no insurable interest presents the same phenomenon.

My guess is that the answer comes from the short, four or five question list written up by Spitzer in Slate:

"What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

Was it already known who the counterparties were and what the exposure was for each of the counterparties?

Why weren't the counterparties immediately and fully disclosed?"

They used to say the counterparty make up wasn't disclosed because it would be too scary, and shatter the world markets. But some also said that the CDS market largely balanced out, so that it is not in reality a several $trillions issue.

Who are those remaining CDS creditors out there? Why don't we know?