Screw the Federal Reserve.

Another reason to grind our teeth in the direction of the Federal Reserve, courtesy of a report appearing in Bloomberg, as discussed by Yves Smith in the blog Naked Capitalism [emphasis mine]:

It had generally been assumed that the AIG payouts of 100% on credit swaps (when the insurer was under water and bankrupt companies do not satisfy their obligations in full) was the result of some gap in oversight plus traders at AIG exercising discretion (they were unhappy about bonus rows and had reason to curry favor with dealers, who were potential employers).

The article [appearing in Bloomberg] makes clear that AIG had been negotiating to settle on the swaps prior to getting aid from the government, and was seeking a 40% discount. The Fed might not have gotten that much of a discount, but there was clearly no need to pay out at par.

This massive backdoor subsidy to the likes of Goldman, DeutscheBank was authorized by Geithner while he was at the New York Fed. [...]

[T]he fact that this was a backdoor rescue means the Fed is acting as an extra budgetary vehicle of the Treasury. This is a violation of the Constitution and shows how patently false the Fed’s claims of independence are. [...] The real issue is that the Fed BY DESIGN bailed out banks, including foreign banks, through a device not authorized by Congress.