This just gets better all the time:

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.

In other news… if you’d like to borrow my collection of broken old Macintosh SE’s (I swear, they’re INVESTMENT-GRADE, really!), I’d happily accept cash as collateral.

Apparently, this transaction makes sense… I’ve only listened to about 2/3 of the This American Life program mentioned a few days ago, so… it only makes 2/3 sense to me. The New York Times explains it thusly:

By stepping in and permitting A.I.G. to lend the securities onward to the New York Fed, the Fed will allow A.I.G. to preserve cash. It will also keep A.I.G. from having to mark down the value of the securities at a time when their market value is constantly changing.

The central bank said that the new program would help A.I.G. use cash more effectively and provide enhanced credit protection to the taxpayers, who stand behind the $85 billion loan.

As a taxpayer, I feel well protected, don’t you?