The Fed is a private corporation, not a government entity.
So it makes a loan guarantee, and the Treasury prints more money to back it up. And if AIG fails, the Fed doesn’t pay the price—the taxpayer does.
Same thing with Fannie Mae and Freddie Mac. They lend the money, which is floated into the system by the Fed. When the loans go south, the Fed doesn’t pay the price, the taxpayers do.
The Fed should be audited. Since 1913, it has done what it has done without any oversight by Congress.
Yet, everything it does affects our lives.
“The Fed is a private corporation, not a government entity.”
This, I believe, is a fallacy. The Fed is a government entity because it has governmental power (i.e. a monopoly on issuing currency). It lacks is oversight by the electorate (like the Supreme Court) and checks and balances from other branches. The problem with the Fed is not that it is more private than, say, Congress. The problem is that the Fed is way more powerful than the democratically-elected branches dare to be.