How Do You Pull $85 Billion Out Of A Hat? The federal government announced this week it would bail out insurance giant AIG. So where does the government get a spare $85 billion? Slate.com's Samantha Henig has the answer.
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How Do You Pull $85 Billion Out Of A Hat?

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How Do You Pull $85 Billion Out Of A Hat?

How Do You Pull $85 Billion Out Of A Hat?

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MADELEINE BRAND, host:

All this talk of bailouts this week, it makes us wonder, does the government actually have billions of dollars lying around just in case? Let's take the Federal Reserve's promise to give insurance giant AIG an $85-billion loan. Here with the answer is Slate.com's explainer, Samantha Henig.

Ms. SAMANTHA HENIG (Explainer, Slate.com): Yes. Well, there isn't a stack of unused cash gathering dust in the federal coffers. The Federal Reserve can always raise money by selling off some of the securities it keeps in reserve, securities like U.S. Treasury bills. These reserves function as a kind of under-the-mattress stash that can be easily converted into cash on the open market. If you look at the Fed's massive balance sheet, which is publicly available, you'll see that its reserves are currently estimated to be less than $200 billion. That's down from 800 billion at the beginning of this year.

In fact, the government didn't immediately hand over any cash to AIG following the announcement of the deal. Rather, the bailout deal represents a promise from the Fed, that an $85-billion loan will be available to AIG at any point during the next 24 months. If and when the company decides it wants the money, it will set up a kind of colossal direct deposit. AIG will supply the Fed with the routing number of its clearing bank, which specializes in transferring securities from one institution to another, and AIG's account will suddenly be a whole lot fatter.

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BRAND: Slate.com's Samantha Henig. That Explainer was written by Noreen Malone.

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BRAND: Stay with us on NPR News.

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