But the fast-dealing culture caught Greenberg's wary eye. By the early 1990s, Greenberg, who ruled the company with an iron fist, had grown so concerned about the unit's derivatives dealings that he formed a secret "shadow team" of traders to mimic A.I.G. Financial Product's trades, according to a former company executive.

Greenberg "was uncomfortable with the results," this executive said. "He thought they were taking too many risks."

The C.E.O. ordered Sosin to dial it back, but Sosin refused. He left the company in mid-1993 and sued A.I.G. He later received a payout of over $180 million from A.I.G.

"Under Hank, F.P. was always on its toes," Kau, the former Financial Products executive said. Greenberg "didn't have a derivatives background, but he was always vigilant about reading the reports." 

In 2005, Greenberg left the company he had built and ran for 40 years following scrutiny by regulators over its accounting practices.

Recently, the usually reclusive Sosin posted a "mortgage rescue plan" on the Anderson Cooper 360 website that subtly pointed the finger at Cassano for A.I.G.'s woes.

Sosin wrote that when he ran A.I.G. Financial Products, "there were large profits, no material losses, and no credit default swaps or other credit derivatives (the primary source of A.I.G.'s recent failing)."

The Wild Card Greenberg had grown so concerned about the unit's derivatives dealings that he formed a secret "shadow team" of traders to mimic its trades.

In the late 1990s, under Cassano, A.I.G. Financial Products ramped up its business of selling credit default swaps, which are insurance-like contracts for big investors with debt obligations—and which lie at the heart of its recent woes. Its main clients were European banks.

"The nature of the program changed," said a person close to Greenberg, adding that over six months in mid-2005, A.I.G. Financial Products expanded dramatically into writing swaps to cover debt that was backed by mortgages.

Credit default swaps are insurance-like contracts that insulate a customer against the chances that the debt obligations they cover might not be paid. The unit typically sold the swaps to big institutional investors that issued or held collateralized debt obligations. Many C.D.O.'s were backed by mortgages. Through its swaps, A.I.G. guaranteed some $440 billion in obligations.

In August 2007, as the mortgage crisis was in full bloom, Cassano told investors on a conference call that for the swaps portfolio, "it is hard for us with, and without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions."

Cassano, however, was not the only one charged with watching the books at A.I.G. Financial Products.

Under Greenberg, the unit acquired new internal watchdogs. Two special oversight committees—a Complex Structured Finance Transaction Committee and a Transaction Review Committee—had been set up in the aftermath of two accounting scandals stemming from A.I.G. Financial Products' work. The committees were created as part of a $126 million settlement that A.I.G. Financial Products reached with the Justice Department and the Securities and Exchange Commission that year over its sale of financial products to Brightpoint and PNC Financial Services Group that had allowed those two companies to artificially dress up their books.

The committees appear not to have understood the risks and exposures at A.I.G. Financial Products.

Yet there had been warnings. Bernard Connolly, the chief global strategist for Banque A.I.G., the European bank that handled A.I.G. Financial Products' derivatives deals, cautioned in 2007 about the coming mortgage crisis and credit collapse, and its effect on derivatives.

Sorting out the mess now falls to William Dooley, the top A.I.G. insurance executive who replaced Cassano, and Edward Liddy, the former head of Allstate who now runs A.I.G.

With hundreds of shadowy subsidiaries, some in offshore tax havens, A.I.G. Financial Products is a tangled web. Unraveling it may raise questions over how or whether it used reinsurance—a business that has gotten American International Group (and Greenberg) in trouble in the past.
   
To be sure, Greenberg created A.I.G.'s Frankenfinance monster. But some analysts believe that he would not have allowed it to run amok.

"Had Hank Greenberg still been running the company," Mr. Havens of UBS said, "I think it's pretty safe to say the situation wouldn't even be close to what is now."

---