Then the underlying mortgage-holders started to default, leading to the value of the super-senior tranches to decline and the spreads on the C.D.S. to widen. Counterparties wanted some collateral to reflect the changes in the market. The credit-ratings agencies downgraded A.I.G., leading to even more demands for collateral.

Does anyone seriously think that the counterparties said to A.I.G., "Hey man, we don't want you to put up any cash. We know it's stupid, but our hands are tied by those damn accounting rules!" Hardly. They wanted their cash now. If these positions were marked-to-model rather than marked-to-market, does anyone think that the counterparties wouldn't have written any collateral triggers into the contracts?

And here let's pause to dispense with a ridiculous assertion from Karabell, which makes one seriously question the credibility of his argument that the market is somehow overreacting ridiculously. He writes in his WSJ op-ed today that the value of the mortgages only has dropped about 10 percent or 20 percent, so how could the value of the securities been wiped out? "There's something wrong with that picture: Down 20 percent doesn't equal down 100 percent," he says.

But of course it can. That's what "leverage" means. When you have a C.D.O. made up of mezzanine tranches of subprime M.B.S., down 20 percent in the underlying can mean exactly that.

Now for the sake of argument, let's say that the market overreacted horribly. Let's contemplate that short-sellers were too convincing. They caused needless panic, helping drive the spreads on the C.D.S. protection way too wide, in turn driving the value of A.I.G. equity down to absurdly low levels. This was causing paper losses, but there were also real credit rating agency downgrades. But it wasn't anything substantive—a mere liquidity crisis at the insurer.

If that were so, why didn't the insurer find buyers? Why didn't the private-equity firms swoop in? They did examine A.I.G.'s books this past weekend. What they found was that the amount that A.I.G. needed was undeterminable. It was an unfathomable black hole. At first it seemed like the company would only need $20 billion. Then on the weekend, the number doubled to $40 billion. Then on Sunday, the Asian markets opened and suddenly the firm needed $60 billion, according to the WSJ. Was $60 billion the right number? Who knows?

The private-equity firms weren't basing their estimates off of silly securities regulations or dumb accounting rules. They were trying to estimate the value of the company. They were allowed to use whatever valuation technique they liked. And they couldn't come up with anything because they couldn't determine the value of the underlying assets.

A.I.G. got into something it didn't understand and didn't protect itself properly. The market-based watchdog—the rating agencies—failed to assess its risk properly. In the market panic, A.I.G.'s counterparties acted rationally to demand more cash, their actions having nothing to do with accounting rules. And the buyers balked.

And no amount of zombie tales will bring the company back.