The question will be whether they should have....

A European bank that received the most Federal Reserve discount window help during the financial crisis also took $381 billion in aid from its home countries and owned subsidiaries implicated in bid-rigging that prosecutors say defrauded U.S. taxpayers.

The Fed, of course, also tried to block release of this information.  They failed, and now we know the truth: Dexia, a Brussels and Parisian company (gee, isn't it interesting how that happens to mesh with Sarcozy and The ECB?) had more than $12 billion outstanding on average over the 18 month period after Lehman collapsed.

Why is this important?  Mostly because Dexia was one of the larger participants in the scheme that was sold to municipalities over the previous decade of issuing both floating-rate debt and an interest-rate swap as a "device" to avoid the risk of interest rate spikes.

The usual way one avoids this, of course, is to issue a fixed-rate bond.

But our financial alchemists "convinced" these state and local governments that they could turn lead into gold.  Specifically, they convinced them that the more-complex structure, comprised of both a bond and a swap agreement, would have lower total costs than just issuing a fixed bond would have.

This violates the common law of business balance, incidentally, which states that all other things being equal, the more-complex something is, that is, the more people have to touch it and work with it, the more it costs you.  Anyone with two firing neurons knows this because nobody works for free.

So how did they make this "work"?  It is alleged they did what everyone does when you enter into something that on-balance can't possibly work - they cheated:

Two former Dexia units were among more than a dozen financial firms that conspired to pay below-market interest rates to U.S. state and local governments on so-called guaranteed investment contracts, or GICs, according to documents filed in a U.S. Justice Department criminal antitrust case.

An employee of Financial Security Assurance Holdings Ltd., one of the Dexia subsidiaries, agreed to pay kickbacks ranging from $4,500 to $475,000 to a Los Angeles investment broker called CDR Financial Products Inc. in exchange for rigging bids, according to people familiar with the case and public records.

CDR employees fed information on competitors’ bids to FSA, allowing the firm to win deals at a lower interest rate than it would have paid, according to a federal indictment, public records and the people.

Steven Goldberg, a former FSA banker, was indicted in July on fraud and conspiracy charges. He has pleaded not guilty. FSA, which hasn’t been indicted, is facing a lawsuit from the U.S. Securities and Exchange Commission. While Dexia sold the bond insurance unit of FSA, it remained exposed to legal risks because it kept another division of the company, its Financial Products segment, Dexia said in its third-quarter 2010 report.

This, my friends, is what we allowed The Fed to "protect" from market failure which arose as a direct consequence of their sale of something that violated those basic principles of business balance. 

When faced with the just consequence of what did (and should) occur when you strike a deal that is uneconomic and, it is alleged, constituted fraud on top of it, the US Taxpayer bailed them out.

Again: We the people allow The Fed to exist and bail out firms that do this sort of thing.... why?