Old e-mails show AIG’s tension rising

In-house e-mails at U.S. insurance giant American International Group show rising tension over the derivatives market that began to unravel in 2007.

At the Financial Products division which handled the insurance bets on mortgage securities, executive Joe Cassano repeatedly claimed the business model AIG was using -- indicating a 99.85 percent chance of never having to pay out -- was solid, The Washington Post reported Wednesday.

Cassano grew so weary of inquiries from Elias Habayeb, an executive at company headquarters, that he wrote to his staff, "more love notes from Elias … Please go through the same drill of drafting answers."

While the e-mails reveal Cassano's steady willingness to defend the market, investigators will read the e-mails with a jaded eye, trying to discern if AIG was being dishonest before the derivatives market collapsed.

Eventually, accountants, regulators, clients, the media and credit rating agencies turned on the heat with rising concerns. Eventually, as well, AIG ended up with $180 billion in federal bailout funds to keep it afloat.

By December 2007, an in-house e-mail revealed, "we are in uncharted waters."

Officially, AIG said in a court filing in New York, "being wrong or even unwise, in hindsight, is not the same as violating the securities laws."

The company would not comment on the e-mails, the Post said, citing various on-going investigations.