Wednesday, October 08, 2008

Both a borrower and lender be

Excellent news for AIG: the government funding for lavish corporate retreats will continue --

The Federal Reserve Board has authorized the Federal Reserve Bank of New York to borrow securities from certain regulated U.S. insurance subsidiaries of the American International Group (AIG), under section 13(3) of the Federal Reserve Act.

Under this program, the New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral. These securities were previously lent by AIG’s insurance company subsidiaries to third parties.

Notice the description of the loan: the New York Fed is "borrowing" the securities in return for cash collateral. In a normal secured loan, it's the person who needs the cash who puts up the collateral e.g. a house. But according to the new Fedspeak, that's backwards. The cash you get from the mortgage is actually your collateral and the bank has borrowed the house. Being a huge corporation rules!

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