One of the biggest mysteries of the financial crisis is why the Fed decided to approve and essentially pay for AIG (AIG) to buyback CDOs from a bunch of banks, including Goldman Sachs(GS), at par. Many remain puzzled why the banks were not asked to take a haircut.

Bloomberg has taken a close look at the situation and offers lots of background information, though the specific rationale remains unclear. The content of the Fed deliberations have never been made public. Bloomberg notes the view of one person that securities were bought at par "because some counterparties insisted on being paid in full and the New York Fed did not want to negotiate separate deals." It may indeed have been that paying full freight was the fastest way to get through the fast-moving crisis.

Some will recall that New York Fed Stephen Freidman, a former chairman of Goldman Sachs, resigned after it was revealed that he bought 50,000 shares of Goldman Sachs after the takeover of AIG by the government. There's a whole lot of answers that remain elusive around this.

The bottom line: The Fed ended up with CDOs bought back from banks, which remain in a vehicle called Maiden Lane III. The securities have fallen in value by $7 billion as of June 30, notes Bloomberg, which continues to look at the situation. Neil Barofsky, TARP inspector general, is set to weigh in soon. 

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