Charlie Rose recently had half an episode dedicated to discussing the mess at AIG. In it you’ll find plenty of evidence on how the government has aided and abetted this disaster.

Hank Greenberg on how AIG got into this mess (i.e., somebody at AIG dropped the ball on risk management at the company… which, when you think about it, is kind of a strange thing to happen at an insurance company) Mr. Greenberg also comments on how the securities that AIG held (that required more capital when AIG lost its triple-A rating) were marked to market (more on this later) :

HANK GREENBERG, FORMER CHAIRMAN AND CEO, AIG: AIG’s AAA rating was an asset that helped it do business. It made $5 billion during the time I was with the company. It was a very much controlled. You had to have very good risk management, which we did. They couldn’t do new products without having approval for it. It was very well — it was looked after.

Once AIG lost its AAA rating, and that was brought on by many things, but they lost that AAA rating, and at that point, they should have stopped doing credit default swaps.

CHARLIE ROSE: Why didn’t they?

HANK GREENBERG: I don’t know. And they should have hedged the book that they had outstanding. That would have been the end of it.

CHARLIE ROSE: So they just forgot a sense of the risk and exposure they had when it went way beyond where it should be?

HANK GREENBERG: Well, you know, it is more complicated than that, Charlie. They were doing many different things, and — but most of the business when it was started was to be — was a hedge business. You took one side of a transaction and hedged on the other side, and you had a profit in-between the two transactions. Had they stuck with that, it would have been fine.

Now, you know, the so-called super senior subprime, if you listen to the banking — the Senate Banking Committee hearings two weeks ago, it was reported there were no losses in that category of risk in the credit default swaps. The losses came about when they lost their AAA rating, they were required to put up more collateral. And collateral is cash. That was one side of it. And then the counterparty had the right to mark the security to whatever they thought the mark should be. They left it to the counterparty to decide what the mark should be.

CHARLIE ROSE: Who were the counterparties?

HANK GREENBERG: You name them. Morgan Stanley, Goldman Sachs, Deutsche Bank, you know, the whole array.

Meredith Whitney on the capricious actions of the government:

CHARLIE ROSE: Meredith, the two topical issues today, the bonuses to these executives that the president is saying, yes, there might have been contracts but he has instructed Tim Geithner, the secretary of the treasury, to try to get out of the contracts. Why should they be paying money to executives who were there at a firm that has caused such a huge demand on taxpayers? Explain this issue.

MEREDITH WHITNEY, MEREDITH WHITNEY ADVISORY GROUP: Well, it is a legitimate question, because our taxpayers are funding holes that were created within not just AIG, but so many companies. So as an average taxpayer saying wait a second, why are we putting more money into a black hole and why are we funding bad behavior?

The larger issue that is so important to focus on is something your friend Andrew Ross Sorkin wrote about, which is the whole notion of what are the rules? What is a contract and how do we protect contracts? How do we protect the legal system in this country? Because if the rules are constantly changing, you are going to have a freeze in commerce, you are going to have a freeze in spending, which is obviously a freeze in commerce, and people are going to be too scared to act. And I think a lot of companies have already behaved that way. They are too scared to act because the rules are changing on them constantly.

Gretchen Morgenson on how well thought out the government’s bailout plan was:

GRETCHEN MORGENSON: Charlie, what I think the $165 million in bonuses really illustrates, it’s a symptom of the problem of the bailout to begin with, which was this was done in a hurry. We had absolutely no idea of what was going on…

CHARLIE ROSE: Because of the idea that if AIG went down, it would have — it would have ramifications throughout the global economic — you’re smiling, I’ll come to you…

GRETCHEN MORGENSON: Take down other banks, et cetera. But you know, the FDIC, when it takes over a bank has, you know, rules in place to kind of allow it to abrogate contracts. This is a perfect case of the government stepping in, hurrying up, doing something, and then sort of figuring out later, oh, hey, we had these contracts, and everybody is going to get mad at us for paying them out, but gee it looks like we can’t do anything about it. So it is kind of, you know, shoot first, aim later.

Gretchen Morgenson on how well the government protected the taxpayer’s money (or not):

GRETCHEN MORGENSON: My question is, why are we paying out 100 cents on the dollar on these claims across-the-board?

CHARLIE ROSE: And what is your answer?

GRETCHEN MORGENSON: To Goldman Sachs, to Calian (ph), to SocGen, to all of these banks…

CHARLIE ROSE: Deutsche Bank and all of these.

GRETCHEN MORGENSON: Deutsche Bank.

CHARLIE ROSE: So what is your answer to that question?

GRETCHEN MORGENSON: I don’t know. But here, let me finish asking the question, which is if in fact it was systemic risk, if in fact Goldman Sachs was going to, you know, fail or somebody else was going to fail because of this, let’s take a look at this list of counterparties and decide who, in fact, does need to be bailed out because of systemic risk, and who does not and who could take a haircut and who could say, OK, I will pay, you know, the government could negotiate tough across the table and say, you are not in any risk of failure, you are going to take — you are going to pay 75 — I am going to pay you 75 cents on the dollar, instead of 100 cents on the dollar.

There did not appear to be any thought to how to make this the best possible deal for the taxpayer. It was all just hurry up, we have got to do this, it’s a problem, it’s a problem, and now we are paying the consequences.

Hank Greenberg inputs more on how well thought out this bailout was, and Meredith Whitney comments that you could have seen this coming:

HANK GREENBERG: First of all, the insurance business of AIG was one of a kind.

CHARLIE ROSE: The largest in the world.

HANK GREENBERG: It spanned the globe, and the insurance business is under the regulatory system of the states in the United States, and the different countries in which it operates. You can’t just reach in and take the assets of the insurance companies for any purpose that you want. They are protected. And so, the insurance part of the business, which was the largest part, obviously, of AIG, was not subject to any systemic risk.

The question then of AIG Financial Products, back to what I said earlier. If they had put up guarantees, we could have gotten over this problem. Renegotiated with the counterparties. But none of that was done. This was — this was a fast trip to 79.9 percent ownership.

MEREDITH WHITNEY: But that is what is so interesting, is you got a preview of this coming with the downgrades of all of the other monolines (ph). For a year you got a heads-up of what was coming, and there was no examination — would you agree about that, of AIG? So you could have prepared for this by looking at what happened with MBIA, with Ambac, with so many others and, you know, SCA. There were so many companies that actually went bankrupt, and eye was off the ball. So when you know you’ve missed something and you’re guilty, you are furious. AIG was right there. They were the biggest insurer of counterparty exposure, and with big, well-regarded institutions.

How about how things are going with the new administration?

CHARLIE ROSE: All right. Let me ask this. How is this administration doing in dealing with this problem?

GRETCHEN MORGENSON: Gee, I sure wish they could communicate better about what they are doing. I mean, Obama…

CHARLIE ROSE: We don’t know what the rescue plan is so far?

GRETCHEN MORGENSON: No, no. Obama has…

CHARLIE ROSE: That’s in the Treasury Department.

GRETCHEN MORGENSON: … he has a gift of communication, right, we all agree with that.

CHARLIE ROSE: Right.

GRETCHEN MORGENSON: Well, his underlings do not, and we are really in the dark.

and…

MEREDITH WHITNEY: They have to — look, everyone I know in New York wants to help, and their phone hasn’t rung, OK? So the government is not reaching out, and that is a problem. And there is — there seems to be an embedded belief in D.C. that you can’t mix business and politics, and the business people may have the best solution for that. And they want to help, and this doesn’t work out well for any of us on the track that it’s going.

And so what I thought they were going to do in terms of the bipartisan campaign that they ran was cast the widest net to the widest amount of people and come up with great solutions. So you get one from thousands of people that is one good idea. That is what — we really need that.

Well, no worries… it’s only our entire economy at risk here.

And Hank Greenberg on the future of AIG:

HANK GREENBERG: Right now, what have you got? It is going to be busted up and it will be sold to foreign countries, and what have you achieved? Taken the greatest insurance company in the history of this country and they are going to destroy it.

I’m from the government, and I’m here to help.

p.s. As a bonus, here is Hank Greenberg’s interview with Charlie Rose that was filmed on September 16th, 2008. Perhaps we should think about the wisdom of attorney generals waging war on CEOs to aid their way to higher office (and in this case, personal humiliation).