The next wave in the meltdown will be white-collar prosecutions, and there appears to be some promising material to work with at demolished AIG (which, so far, has put the US taxpayer on the hook for $123 billion).

For example, here's what Joseph Cassano, the head of AIG's credit default swap insurance business in London, allegedly told an internal AIG auditor when explaining why the auditor was being excluded from valuation meetings:

"Because...you would pollute the process."

The auditor quit shortly thereafter and has since relayed his memory of the conversation to Congress.

Cassano, you'll recall, is the AIG employee credited as being the most responsible for blowing the company to smithereens. Like many such tidbits, this quote may be meaningless--the flawed recollection of an angry ex-employee--and derivative valuation is nothing if not subjective. But it seems prosecutors have something to work with.

WSJ: At congressional hearings Tuesday, a former internal AIG auditor wrote that he had early on raised concerns about being excluded from conversations about the valuation of the derivatives. The auditor, Joseph St. Denis, wrote in a letter to the House Committee on Oversight and Government Reform that in early September 2007, he learned that AIG's financial-products unit had been asked for billions of dollars in collateral related to derivatives it had sold.

"I was gravely concerned about this," Mr. St. Denis wrote. The derivatives, known as credit-default swaps, protect buyers against the risk of default on other investments, and AIG believed the likelihood of making payouts was remote. Mr. St. Denis wrote that the valuation model of one of AIG's trading partners "apparently indicated" that, in fact, the unit "was in a potentially material liability position."

Mr. St. Denis wrote he wasn't personally involved in the valuation of the swaps at the unit. In the last week of September 2007, Mr. St. Denis wrote, the unit's head, Joseph Cassano, said he had "deliberately excluded" Mr. St. Denis "because I was concerned that you would pollute the process."

In the letter, Mr. St. Denis said he resigned on Oct. 1, 2007, and that later that month, AIG's chief auditor, Michael Roemer, asked him why and said he would report those reasons to AIG's audit committee. Mr. St. Denis wrote that he told Mr. Roemer about Mr. Cassano's comment. That would indicate that a key AIG executive last fall was aware of Mr. St. Denis's concerns.

See Also: Meet That Man Who Blew Up AIG!