A brutal report issued Monday by a government watchdog holds Timothy Geithner -- then the head of the Federal Reserve Bank of New York and now the nation's Treasury Secretary -- responsible for overpayments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs.

U.S. Treasury Secretary Tim Geithner speaks during a press conference at the Justice Department in Washington held to announce the establishment of a task force to investigate and prosecute financial crimes connected to the past year's financial crisis and to try to deter future fraud, November 17, 2009. (REUTERS/Kevin Lamarque) The authoritative new narrative describes how, while bailing out insurance giant AIG last fall, a team led by Geithner failed nearly every step of the way.

Instead of bargaining with AIG's numerous counterparties to resolve its billions of dollars in souring derivatives contracts, Geithner's team ended up paying top dollar for toxic assets -- "an amount far above their market value at the time," the report notes.

"There is no question that the effect of FRBNY's decisions -- indeed, the very design of the federal assistance to AIG -- was that tens of billions of dollars of Government money was funneled inexorably and directly to AIG's counterparties," the Office of the Special Inspector General for the Troubled Asset Relief Program said.

Wall Street firms like Goldman Sachs, Merrill Lynch and Wachovia got full value for their derivatives contracts with AIG, and taxpayers got the bill. In total, $27.1 billion of public money was transferred to companies that did business with AIG.

Throughout the bailout of AIG, the report says, the New York Fed failed to develop appropriate contingency plans; failed to properly assess the impact of its decisions; and generally engaged in negotiation strategies that were doomed to fail.

Then, after Geithner's team paid off AIG's counterparties on Wall Street, it imposed "onerous" terms on the troubled insurer, the report says.

"[T]he decision to acquire a controlling interest in one of the world's most complex and most troubled corporations was done with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG," the report finds.

Geithner, now the nation's chief financial officer, just didn't bargain hard enough with Wall Street's biggest companies, the report concludes:

[T]he refusal of FRBNY and the Federal Reserve to use their considerable leverage as the primary regulators for several of the counterparties, including the emphasis that their participation in the negotiations was purely "voluntary," made the possibility of obtaining concessions from those counterparties extremely remote. While there can be no doubt that a regulators' inherent leverage over a regulated entity must be used appropriately, and could in certain circumstances be abused, in other instances in this financial crisis regulators (including the Federal Reserve) have used overtly coercive language to convince financial institutions to take or forego certain actions. As SIGTARP reported in its audit of the initial Capital Purchase Program investments, for example, Treasury and the Federal Reserve were fully prepared to use their leverage as regulators to compel the nine largest financial institutions (including some of AIG's counterparties) to accept $125 billion of TARP funding and to pressure Bank of America to conclude its merger with Merrill Lynch. Similarly, it has been widely reported that the Government, while arguably acting on behalf of General Motors and Chrysler, took an active role in negotiating substantial concessions from the creditors of those companies.

Meanwhile, the Fed was attempting to keep the details of AIG's counterparties hidden from public view -- another big mistake, according to the report:

The now familiar argument from Government officials about the dire consequences of basic transparency, as advocated by the Federal Reserve...once again simply does not withstand scrutiny. Federal Reserve officials initially refused to disclose the identities of the counterparties or the details of the payments, warning that disclosure of the names would undermine AIG's stability, the privacy and business interests of the counterparties, and the stability of the markets.

After public and Congressional pressure, AIG disclosed the identities. Notwithstanding the Federal Reserve's warnings, the sky did not fall; there is no indication that AIG's disclosure undermined the stability of AIG or the market or damaged legitimate interests of the counterparties. The lesson that should be learned -- one that has been made apparent time after time in the Government's response to the financial crisis -- is that the default position, whenever Government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with Government funds.

While SIGTARP acknowledges that there might be circumstances in which the public's right to know what its Government is doing should be circumscribed, those instances should be very few and very far between.

READ the full report:

SIGTARP Report Nov 16 -

Huffington Post Business Editor Ryan McCarthy also contributed to this report.