Updated from Monday, March 16

The public outcry over American International Group's ( AIG) bailout and bonus fiasco has heated up measurably, but it may only have just begun.

AIG on Sunday evening released a detailed list of payouts made to trading partners, or counterparties, after months of lawmaker demands. Congressional leaders wanted information about who was benefitting from the $170 billion in public money that has so far been extended to prop up the sinking insurer.

The list, however, only relates to Sept. 16 through Dec. 31. The government has since extended additional support to AIG, and the counterparty payments do not mean that all related positions have been closed out.

A big chunk of AIG's payments, $22.4 billion of $118.4 billion, was made to dozens of financial firms which bought credit default swaps from the insurer. CDS insure counterparties against major losses on debt investments. As the value of those investments declined, AIG was obligated to provide collateral payments to the firms that purchased CDS.

But many of those underlying credit assets exist in frozen markets where valuations are subjective at best. The government's initial Troubled Asset Relief Program was scrapped because the Treasury and Federal Reserve could not figure out how to set prices for those assets. Paying too much would cause major losses for taxpayers, but paying too little could send financial firms with major exposure into bankruptcy.

The government abandoned its initial strategy of buying the toxic assets, but in its bailout of AIG it provided the insurer with cash it needed for what it called "severe valuation losses." It should come as no surprise that AIG became a conduit to funnel the cash to its top trading partners. After all, in announcing AIG's first bailout on Sept. 16, the Federal Reserve said it was extending an $85 billion loan to prevent "a disorderly failure" and "to assist AIG in meeting its obligations as they come due."

Since then, the government has extended tens of billions of dollars more to the troubled institution. It repeatedly justified those moves by saying that AIG's rescue was not meant to save the insurer, but the complex web of companies that were interlinked through the toxic credit-default swaps AIG issued. Those companies, AIG detailed Sunday, include Wall Street firms like Goldman Sachs ( GS), Bank of America's ( BAC) Merrill Lynch and Morgan Stanley ( MS), as well as foreign banks like Societe Generale, Deutsche Bank ( DB) and Barclays ( BCS).

But it's not clear how valuation losses were determined, or whether some counterparties got better deals than others. Furthermore, AIG did not disclose its remaining exposure to the toxic CDS securities -- in other words, how much more money will be required to unwind all of the positions?

"The problem is nobody really knows," says Edward J. Grebeck, CEO of debt-market strategy firm Tempus Advisors. "The government is saying, 'Oh my God, it would have been a catastrophe if we had let them fail,' but that only tells one part of the problem. The government is not being very open and forthcoming as to what the remaining exposures are for AIG's financial products group."

While AIG has been trying to "entice" firms to cancel out their CDS positions, the incentives simply aren't there, says David Becher, a finance professor and fellow at the Center for Corporate Governance at Drexel University. Derivatives contracts are often structured so that the insurer can pay a fee to extract itself from the deal, but the cumulative price tag may be too enormous for AIG. With the government providing a steady stream of capital, banks have little incentive to bow out on their own.

Lehman Brothers provides a miniature example of what may be at stake with AIG. While Lehman had underwritten $150 billion in underlying debt, says Becher, the company had almost $400 billion worth of exposure to CDS. Investors are still waiting to find out how much they will receive from those hard-to-value assets, and any disclosures about the AIG valuation process could help kick-start the rest of the market, and also provide a tally of the winners and losers so far.

"The government is in a bind here -- if you value it too high, then the taxpayer loses, and if you value it too low, then some of these institutions can go under," says Becher. "But because of the size and exposure of AIG, and the people who had legitimate insurance with them ... sooner or later, the government would have to deal with it somehow. They let Lehman go and chaos ensued."

Another issue on the table is that AIG and government officials have created a human-resources Catch-22. The firm plans to dole out $165 million in bonuses to keep the employees who created the very derivative products that ultimately destroyed AIG as a private, independent entity. The firm says it is contractually obligated to pay those bonuses, and that the employees have critical knowledge about valuing and winding down its toxic assets.

"Maybe regulators should have asserted more control at the start, back in the fall," says David Steuber, co-chair of the insurance-recovery practice at Howrey LLP. "But now they've made some of these people indispensable, and those people are going to need to be compensated at or about the market rate."

But Grebeck, who teaches a course on credit default swaps at New York University, adds that the employees in AIGFP "just blindly used" actuarial insurance models to price credit risk, and are now being rewarded for those mistakes.

Public officials took pains on Monday and over the weekend to distance themselves from the compensation decision-making. Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Commission, said bonuses were "going to people who screwed this thing up enormously" and implied that if the government couldn't prevent them from being distributed, AIG employees could simply be fired.

President Barack Obama said he intends to prevent the bonuses from being paid out, while New York Attorney General Andrew Cuomo demanded details of the planned payouts on his desk by the end of the day.

As AIG works to disconnect itself from the toxic securities and mitigate losses, it is also in the process of shuttering or selling off its AIGFP business as part of its restructuring plan. But six months into the government rescue, it's questionable how long this process will take, and how much it will ultimately cost.

It also remains unclear why AIG is paying up to maintain a competitive edge in a business it is dismantling and hanging onto employees whose analysis and decisions brought the firm to its knees. The company's stock closed Monday up 66% to 83 cents and was rising another 15.7% to 96 cents on Tuesday.

Charles Trzcinka, chair of the Indiana University Kelley School of Business finance department and a former economist at the Securities and Exchange Commission, says the government could have kept itself from the sticky political situation -- and had less of a hands-on role in the private market -- by simply establishing a clearinghouse for CDS.

"The political effect of $170 billion," says Trzcinka, "is that it was not used wisely."

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