Forget the bonuses, was AIG running a fraud ring?

TPM links to this interesting explanation for why the Credit Default Swaps engaged in by AIG, in particular, were apparently criminally fraudulent, not just unreserved, lacking a basis in actual risk of the insured party, etc. (and thus financially unsound by any sane standard). The point is that the current administration needs to understand that paying off the counterparties in full as if all this was hunky dory and they were victims is just throwing money away, and not really doing anything to move us out of this recession. The damage is done, and these counterparties need to take the hit (to the extent they haven't already been paid off).