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Posted on 10/21/2008 9:24:39 AM PDT by BGHater
The Federal Reserve announced Tuesday that it will provide up to $540 billion in financing to bolster the money market mutual fund industry, its latest effort to get credit flowing more freely again.
The Fed's new program, called the Money Market Investor Funding Facility, will be used to support a private-sector initiative designed to provide liquidity, or cash, to money market investors. The Fed plans to back purchases of short-term debt including certificates of deposit and commercial paper that expire in three months or less from money market mutual funds.
The funds are large buyers of commercial paper and CDs, which historically are considered safe investments. However, the credit crisis, which took a turn for the worse last month, has put money market mutual funds under pressure as skittish investors demand withdrawals.
"The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests," the Fed explained.
The Fed is tapping its Depression-era emergency powers to create the new program. It will provide financing to a series of five private-sector facilities — each run by JPMorgan Chase. They will buy commercial paper — issued by highly rated financial institutions — and CDs, bank notes and other eligible short-term debt from the funds. Commercial paper is a short-term financing mechanism used by companies for day-to-day operations.
By doing so, the Fed hopes to take pressure off the funds and to improve credit conditions so banks and other financial institutions will be more inclined to lend to each other, and to consumers and businesses.
"Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households," the Fed said.
(Excerpt) Read more at news.yahoo.com ...
The House of Morgan is back.
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Ping!
Is this where the 750 billion is going?
Dunno. They have so much power from the Depression, I don’t have a clue.
Check your wallet!
WTF?? Ya think the allowed 80:1 over leveraging on hedge funds capitalized with worthless MBS’s (mortgaged back securities) with a $58 trillion global derivatives economy built upon that, has created an orgy in a cesspool???
“OK, I’ve read the article & can’t see where the fed is going to get the money.”
It’s the same process they use in their normal open market operations, only this time the Fed is purchasing commercial paper instead of Treasuries. The Fed ‘monetizes’ Treasury debt when they purchase it; the paper is converted from an illiquid Treasury note into liquid money, “high powered money”.
The biggest portion of the money supply is Treasury debt. The Fed turns this illiquid debt into currency, or actually a bank entry, when they purchase it on the open market.
In this current instance they are taking commercial paper from the MM funds and giving them a bank entry in exchange. This isn’t entirely new, the idea of monetizing private paper was called “the real bills doctrine” and was debated in early Fed history. It was abandoned because In normal times this process reinforces boom cycles and is highly inflationary. It’s a sign of how bad the problems are in the credit markets that the Fed is doing this right now. I’d say that they are very worried that deflation is starting to feed on itself.
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