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MUST READ ARTICLE. ................ http://www.bloomberg.com/apps/news?pid=20601109&sid=a7T5HaOgYHpE

By Sept. 16, 2008, AIG, once the world’s largest insurer, was running out of cash, and the U.S. government stepped in with a rescue plan. The Federal Reserve Bank of New York, the regional Fed office with special responsibility for Wall Street, opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and effective control of the insurer.

The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion.

Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps — insurance-like contracts that backed soured collateralized-debt obligations.

Subprime Mortgages

CDOs are bundles of debt including subprime mortgages and corporate loans sold to investors by banks.

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

The New York Fed’s decision to pay the banks in full cost AIG — and thus American taxpayers — at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.

I always wondered why Tax Ceat Timmy HAD to be made Treasury Secretary because he had such an INTIMATE knowledge of the financial crisis the country was in. This article goes a long way towards explaining the real reason the corrupt Fed Reserve, Goldman Sachs, and Obama’s minions wanted him. It was because he was right in the middle of the AIG scandal, and rather than protecting the taxpayers interest, he agreed to pay full price for swaps protecting garbage CDO’s stuffed with crap mortgages.

The fact that it cost the taxpayers 13 billion was secondary to protecting and paying off the Goldman Sachs bastards, whose CHAIRMAN sat of the Board of the NY Fed when this decision was made! Not only that, after he knew the Fed was going to guarantee Goldman would get 100 cents on the dollar for this garbagem he went out and BOUGHT millions of dollars in stock and proftied hugely from this INSIDE information. Of course, whe he was caught, he was not perp walked like the Galleon hedge fund boys, he was just told to quit the borad of the Fed. This is criminal activity of the highest order, which took place in the highest levels of gov’t. No wonder the Fed does not want to open their books, who knows what other skeletons are in there which have not beeen discovered yet.

I am not a big Ron Paul fan, but on auditing the Fed he is 100% spot on.