Fake government bonds pay no interest and are not redeemable; real bonds, on the other hand, pay miniscule interest, but at least you can get your money back - greatly deflated in value.
Could fake T-Bonds could be used as collateral for loans
from banks & credit unions? I suppose it depends on how vigilant the lending institution is.
Timothy Geither and the rest of the folks in the Treasury were probably privy to the whole scenario.