So the best thing the Fed could have done is bail out European banks?

"Could have"?

AIG ships billions in bailout abroad - Eamon Javers - POLITICO.com

In all, AIG disclosed payments of $105.3 billion between September and December 2008. And some of the biggest recipients were European banks. Societe Generale, based in France, was the top foreign recipient at $11.9 billion, Deutsche Bank of Germany got $11.8 billion and Barclays, based in England, was paid $8.5 billion.