Turns out the folks in charge of winding down American International Group (AIG) are smart after all. They might be too clever by half, though. It's now public knowledge that AIG was arguing to the government's special master for executive pay last summer and autumn that its common shares were worthless, and that its top managers therefore should receive their salaries all in cash rather than partly in stock. This revelation came thanks to Steven Brill's recent article in the New York Times. His primary source was impeccable: Kenneth Feinberg, the pay czar himself.

There's an important angle to this story not addressed in Brill's article. If top AIG executives believed the common stock was worthless, why did the company keep issuing financial statements that still showed billions of dollars of common shareholder equity? If the Securities and Exchange Commission isn't digging into this question already, it should be. So should AIG's outside auditor, PricewaterhouseCoopers.

"Worthless" is the word Anastasia Kelly, AIG's general counsel and vice chairman at the time, used during the company's compensation negotiations, according to Feinberg. We also learned from Brill's article that Federal Reserve Bank of New York officials agreed with AIG's position, after the Treasury Department told Feinberg to consult with them.

They'll get no argument from me about the value of AIG's stock. I said as much in September, when I openly wondered why anyone would pay anything for shares of AIG, which then had a $26.5bn (€18.5bn) stock market capitalisation, including the government's controlling stake. I wasn't alone either.

In July, for instance, Citigroup insurance analyst Joshua Shanker said AIG may have no value left for shareholders after repaying the US. "Our valuation includes a 70% chance that the equity at AIG is zero," Shanker wrote at the time. (Shanker now works at Deutsche Bank.)

It remains a mystery to me why AIG still trades for about $29, giving it a market cap of more than $20bn, considering that the company has needed four government bailouts valued at more than $180bn. It shouldn't surprise anyone that senior AIG executives harboured similar feelings. For AIG to pay back even part of the government's money, it probably would have to dilute existing shareholders massively by selling new stock, which itself may not ever be possible.

Here's what AIG's balance sheet has shown for the past two quarters: Common shareholder equity, also known as book value or net worth, was $14.7bn as of 30 June and $5.1bn as of 30 September, according to the company's filings.

If AIG's executives believed the shares were worthless, it's hard to imagine how they could justify filing balance sheets that showed the company still had a positive book value.

It wouldn't make sense for them to believe AIG's common equity was greater than zero if they thought the common stock had no value.

One explanation could be that Kelly was bluffing when she made the case to Feinberg that AIG's shares were worth nothing. This seems unlikely. (Kelly, who resigned last month, did not return my phone calls.) It makes perfect sense for AIG's top executives to have believed the stock was a zero. Never mind that the market has lost its marbles when it comes to AIG's shares.

We've seen the same phenomenon with the stock prices of Fannie Mae and Freddie Mac, which were seized by the government in 2008 and still magically sport multibillion-dollar stock market values. General Motors' old stock, now trading under the name Motors Liquidation, still fetches 60c a share, giving it a $367m market cap, even though the automaker filed for bankruptcy last June.

The old GM has said repeatedly in its financial filings that its shares are worthless, which shows its officers believed this was a material fact worthy of public disclosure. AIG so far hasn't taken this step. It's unclear why its executives didn't feel a similar obligation.

An AIG spokeswoman, Christina Pretto, declined to comment, aside from encouraging me to read the company's financial reports. Those say the company may need even more government money later, and that AIG may not survive without it.

The latest twist in the AIG saga provides a reminder of one of the fundamental flaws in the government's bailout efforts. Rather than insisting that failing banks and insurance companies come clean about the rot on their balance sheets as a condition of accepting taxpayer money, the government plied them with cash first and let them keep their true financial condition hidden.

While many financial companies' stocks and bonds have soared since last spring, that's not necessarily because their fundamentals are so great or their numbers are so credible. The main thing propping them up is the promise that the government will backstop companies it deems too important to fail. Take away that support and market confidence would go with it, because investors still wouldn't know which companies' books to trust.

At least at AIG, some of the secrets are starting to come out. Fed and Treasury officials should feel ashamed for letting AIG's bosses keep them from the public for so long.

Good luck to anyone at the SEC who feels inspired to investigate this can of worms.

Jonathan Weil is a Bloomberg News columnist