The government can't just make up laws as it goes along. You are right, and I'm glad you are saying it :) But didn't the Fed fail in it's regulatory role over

The government can't just make up laws as it goes along. You are right, and I'm glad you are saying it :) But didn't the Fed fail in it's regulatory role over the commercial banks to whom AIG was counterparty on swaps, when they allowed valuation of Tier Capital assets based on the 'quality' provided by swaps from AIG and friends? With any due diligence whatsoever the banks would have known that AIG didn't have the capital to pay those contracts. From that angle it looks like some or all of: The Fed was asleep, AIG misrepresented itself to CDS customers, or banks were complicit in the misrepresentation (or they didn't care because they could hedge the CDS with short CDS from a different counterparty -- now that is systemic risk). Go a step further -- the Fed accepted these CDS-wrapped assets as collateral for TSLF/TALF loans -- so the same statements about banks could be applied to the Fed, they either didn't do the due diligence on the collateral or they are complicit in breaking the law. Right? Edit: for God's sake, I despise economics. I just want to get back to work and create stuff!