Last night the Fed announced another $38bn infusion into AIG. Curious, of course, is how they decided to word the transaction: the Fed is "borrowing" certain assets in return for "cash collateral." While a cash collateral is a perfectly legitimate transaction structure, we believe that this is just a cumbersome attempt to obscure a second recapitalization of AIG in under 2 weeks.

Granted, since the Fed effectively owns AIG at this point, we imagine its within their rights to recap a company they own by juggling assets between their two balance sheets.

So what where they thinking? As we see it:

• Option 1: The Fed found that AIG's balance sheet was even weaker than thought and AIG needed an immediate cash infusion.
• Option 2: AIG would eventually need an infusion, but the Fed didn't want to wait and face destablizing markets again within a new infusion a month or three down the road (assuming they get stable). In essence, take a beating now as opposed to restarting a bad cycle again later.
• Option 3: They thought no one would notice.

Nonetheless, the concern remains that we still don't have a handle on the strength of AIG.