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AIG will be bailed out by the Fed with up to $85B in secured loans, but where does the money come from?

specialday(Joyce)

An abstract from a newsletter prepared by TD Securities:

“Unlike with Freddie and Fannie, it appears to be the Fed and not the Treasury that is financing this loan. Unlike the Treasury Department, the Fed cannot directly issue Treasuries to finance the operation. This leaves three options:

1)The Treasury could indirectly issue Treasuries for the Fed and leave the proceeds with the Fed.
2)Fed can print money and finance the operation in that manner. This has the substantial downside of being inflationary.
3)Fed can finance the operation out of its existing balance sheet by selling some of its existing Treasuries in exchange for cash.”

Which option will be the most likely one?

(#532@52)
Last Updated: 2008-9-17

Replies, comments and Discussions:

AIG will be bailed out by the Fed with up to $85B in secured loans, but where does the money come from? -specialday(Joyce); 2008-9-17 {699} (#532@52)
An abstract from a newsletter prepared by TD Securities:

“Unlike with Freddie and Fannie, it appears to be the Fed and not the Treasury that is financing this loan. Unlike the Treasury Department, the Fed cannot directly issue Treasuries to finance the operation. This leaves three options:

1)The Treasury could indirectly issue Treasuries for the Fed and leave the proceeds with the Fed.
2)Fed can print money and finance the operation in that manner. This has the substantial downside of being inflationary.
3)Fed can finance the operation out of its existing balance sheet by selling some of its existing Treasuries in exchange for cash.”

Which option will be the most likely one?

1). I think option 3 will pull some liquidity out of the system by Fed's action. That would complicate the monetary policy situation. -cosmoyx(My way); 2008-9-17 (#534@52)

I'm...... -specialday(Joyce); 2008-9-17 {13} (#535@52)
not with you!

So what's your point? -cosmoyx(My way); 2008-9-17 (#542@52)

不告诉你。。。 -specialday(Joyce); 2008-9-17 (#548@52)

First of all we got to clarify the role and function of the Fed. Option 1 and 3 and some combined actions (e.g. bridge loans from the banks behind and controlling Fed) all could finance Fed to finance AIG. -hakama(Ippon); 2008-9-17 (#536@52)

@Edmonton

AIG will be bailed out by the Fed with up to $85B in secured loans, but where does the money come from?

Replies, comments and Discussions:

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