No, the way this works is this (as I understand it): I'm a bank, I need some cash to operate (people withdrawing money, trading, making payments, etc.), but I have no cash. I have $10B in US Treasury bonds, but - well, they're
notionally worth $10B, but nobody want to exchange them for money, because noone else has money to spare (i.e.
liquidity crisis). So here comes the Fed, takes my $10B in bonds, gives me $10B of cash so that I can run my business... In a week or so, I need to return $10B in cash, I get my $10B in bonds back ("collateral") and the cycle continues again.
The alternative is, the bank collapsing, taking some part of the economy with it.
The alternative is, the bank collapsing, taking some part of the economy with it.