On May 21st, the White House nominated James Cole of Bryan Cave, LLP for the position of Deputy Attorney General at the Department of Justice (DOJ). Cole was the Independent Consultant at AIG in the years leading up to the September ’08 bailout there.

On the same afternoon, the Department of Justice closed its two-year investigation of Joseph Cassano, Andrew Forster, and Thomas Athan of the London-based Financial Products Unit of AIG and informed them that they would not face criminal charges.

Cassano was the CEO at AIG-FP, Forster was the head trader and executive vice president and Athan was a managing director. None of them will be the subject of criminal prosecution, according to the Washington Post.

So, just about two years after AIG nearly runs the international economic system over a cliff, the Justice Department decides there was no criminal wrongdoing and the former AIG monitor is selected to run the day-to-day operations of the Justice Department. Although Cole, as the Independent Consultant (IC), was not monitoring the risk-taking that contaminated AIG-FP, the decision to leave the unit to operate without oversight was at least partially his.

According to one source at AIG, the prevailing storyline – that AIG-FP was a rogue unit operating largely beyond the regulatory reach of its corporate parent – is a myth. If the senior management and the board of the corporation office did not know about the magnitude of the financial risk assumed by AIG-FP, this was willful ignorance.

And Cole’s reports to DOJ and the SEC reflected this. The infamous credit-default-swaps of AIG-FP that cost the US taxpayer over $180 billion were exempted from independent review, according to his September 30, 2007 recommendations (p. 87). Cole was echoing corporate strategy on this point. In late 2005, according to Michael Lewis in The Big Short, AIG-FP executives, concerned about the real risk associated with bonds based on the US subprime-mortgage market, slowed and then stopped selling guarantees on the swaps. At that date, they knew a downturn in that market was only a matter of time. Shortly thereafter, a senior compliance officer at corporate headquarters in New York who proposed an oversight visit to AIG-FP was blocked from traveling to London; she was told the trip was too expensive for AIG.

Finally, on April 2nd, 2009, Rep. Gary Peters (D-Mo) wrote to AIG CEO Edward Liddy and asked:

“AIG executives responsible for risk management were not allowed to investigate the activities of the Financial Products unit. If those executives had reason to believe that there were problems with the Financial Products unit, what actions should they have taken to protect shareholders from potential losses?”

We do not know the answer to this question, but we do know that James Cole should have asked it a few years before. After all, he was originally placed at AIG as the IC because of criminal activity in the Financial Products unit. But not only did he not ask about risk management at AIG-FP, he didn’t seem to think it odd that no one else in the Compliance Office was asking either. And now that the investigation into AIG-FP has been closed without prosecutions by DOJ, apparently no one ever will ask. If Cole wasn’t curious about the deals at AIG-FP when he was actually at corporate headquarters, he’s not likely to care about it as Deputy Attorney General.