The New York Times has an interesting story, New Weakness Seen at A.I.G. . It seems AIG has been playing state regulators off of each other, to hide liabilities.

In the months since A.I.G. received its $182 billion rescue from the Treasury and the Federal Reserve, state insurance regulators have said repeatedly that its core insurance operations were sound — that the financial disaster was caused primarily by a small unit that dealt in exotic derivatives.

But state regulatory filings offer a different picture. They show that A.I.G.’s individual insurance companies have been doing an unusual volume of business with each other for many years — investing in each other’s stocks; borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect.

More ominously, many of A.I.G.’s insurance companies have reduced their own exposure by sending their risks to other companies, often under the same A.I.G. umbrella.

Now the article points to a lawsuit where some of this information is coming from, but the maze of state insurance regulators, which are each regulating just one subsidiary, with a web of inter-dependencies among subsidiaries and no oversight on those dependencies is most interesting.

Note, state regulators are quoted as saying the A.I.G. subsidiaries operating in their states are perfectly solvent.

Perhaps the New York Times has hit the tip of another investigative iceberg?