When I first looked this up last year, no good explanation came about, so let me explain in my own words.
(Read the article)

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Treasury sells $40 billion in bills for Fed at 0.30%

The Treasury Department issued $40 billion in 35-day cash management bills Wednesday at a rate of 0.30%. Proceeds from the sale will immediately be transferred to the Federal Reserve to fund its operations to improve liquidity in money markets. The sale was needed to help the Fed expand its balance sheets, which has been shrinking as it lent out cash to banks and primary dealers to keep the financial system working.

Not nearly as bad as this scenario, where

… the accounting trick is simply for the Federal Reserve to “agree” to “buy” worthless assets like new government bonds that nobody else wants and for the government to turn right around to “fund” the Federal Reserve with the new money it got.

In fact, quite the opposite. I’m glad that people still want Treasury bills, even to the tune of zero (and perhaps soon to be negative) yield. I guess there is really no alternative. Where else is money to be kept … I would keep it where people/companies are most willing and able to produce valuable goods, but these are hard to identify clearly these days, so a proxy is as good as anything.

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So finally, the Fed is taking home loans onto its balance sheet, a tool Bernanke proposed years ago to combat deflation. (Interesting, the list of reflationary tools proposed were: drop short-term interest rate, cap long-term rate, buy private debt, buy foreign debt, tax cut, and government purchases; so there are just a few more options left.)

Fed Easing Liquidity in Funding Markets

By Jeannine Aversa, AP Economics Writer

The Fed announced the creation of a new tool, called the Term Securities Lending Facility (TSLF), geared to provide primary dealers — big Wall Street investment firms and banks that trade directly with the Fed — with 28-day loans of Treasury securities, rather than overnight loans. They would pledge other securities — including federal agency residential-mortgage-backed securities, such as those of mortgage giants Fannie Mae and Freddie Mac — as collateral for the loans of Treasury securities. Fed officials said that’s the first time they’ll be accepting mortgage-backed securities through this type of lending program.

Unfortunately, that does tend to make the Fed less credit-worthy, say if the banks were unable to repay their 28-day debts. And since the Fed is where the government keeps its money:

U.S. Treasuries Riskier Than German Debt, Default Swaps Show

By Abigail Moses

March 11 (Bloomberg) — The risk of losses on U.S. Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show.

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