The US treasury just made the following announcement:
"The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve. The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program, which will provide cash for use in the Federal Reserve initiatives."
The announcement didn't say how much this "temporary" facility would provide, but presumably its first task will be to finance the AIG nationalisation. Yesterday, the Fed agreed to provide a whopping $85 billion credit line, while at the same time taking an 80 percent stake on the company.
Judging by the terms of this loan, the Fed really laid one on the AIG management. This is what the press release reported:
"The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility."
On September 10th (the last day I have data), the three month US dollar LIBOR rate was 2.82. So, the Fed are going to charge an interest rate of 10.32 on this baby.
I wish I could get a interest rate like that on a two year deposit.