Where is all of the Fed Loan money coming from?

[RochFireball]

Looking at the news, I see that the fed has loaned $2 trillion to a number of banks. This is on top of the $700 million Congress approved and other funds expended, such as to AIG.

I have read the US will increase its borrowing, but the figures I see are nowhere near $2.7 trillion dollars of increased borrowing.

I can only assume that the fed 'created' this much money by fiat. (I.E. when the Fed writes a bailout recipient a check or transfers money to the recipient's account, it appears by fiat. When the fed 'gives you money', you assume it is good! Since money is backed by nothing but 'the faith and credit of the US Government' the government can 'print' all of the money it wants. (Actually they don't even have to print it, since it is all 'blips on a screen'!)

Am I understanding this correctly, or am I missing something?

Please help me out here! Thanks!

[ainsleyclare]

When the 700 billion dollar bailout was first proposed, my immediate reaction was "where is this money going to come from?", at which point my husband turned to our two-year-old son and said "Son, your grandchildren are going to be paying for this".

[mannfm11]

Swaps. Money isn't alwys cash. I am almost certain the government will give the banks bonds. The main use for Fed funds is for transactions between banks and currency for customers. Bank capital is almost totally a balance sheet entry and not actual cash. It can be anything as long as it is something besides an asset or liability. The money they keep talking about has already been loaned in some sense. it is in the bank assets