Posted on 10/07/2008 8:40:13 AM PDT by DannyTN
Fed Statement on Plan to Buy Commercial Paper The Fed released the following statement on a plan backed by the Treasury to buy commercial paper directly from issuers.
The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve’s existing credit facilities to help provide liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Federal Reserve will provide financing to the SPV under the CPFF and will be secured by all of the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the Federal Reserve Bank of New York in support of this facility.
The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities. As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day. A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households.
By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. Added investor demand should lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper. An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.
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They are going to destroy this country if not stopped.
Uh oh, that’s radical. You might need to be investigated for your own safety. /s
When has government ever been the solution?
The federal government keeps growing and growing and growing....creating problems and growing again to address those problems it created. Depressing.
I don’t suppose we’re going to get to vote on this expenditure, are we?
Nah...a trillion here, a trillion there - no big deal.
And this is outside of the $700 billion (or $850 billion) we’re already spending.
Outstanding.
Something which a lot of FReepers appear to be against.
Charmin or generic?
You can bring your horse to the water, but you can’t make him drink. Or as in this case, you can bring water to your horse. But you still can’t make him drink.
So, will the horse (commercial paper lenders and borrowers) feel confident enough to drink? Or not?
The printing press is at full speed.
The Fed and the Treasury are acting as market makers in markets that are highly dysfunctional right now. I don’t think socialism is the best way to describe that.
"Hayek’s central thesis is that all forms of collectivism lead logically and inevitably to tyranny, and he used the Soviet Union and Nazi Germany as examples of countries which had gone down “the road to serfdom” and reached tyranny.Hayek argued that within a centrally planned economic system, the distribution and allocation of all resources and goods would devolve onto a small group, which would be incapable of processing all the information pertinent to the appropriate distribution of the resources and goods at the central planners’ disposal.
Disagreement about the practical implementation of any economic plan combined with the inadequacy of the central planners’ resource management would invariably necessitate coercion in order for anything to be achieved. Hayek further argued that the failure of central planning would be perceived by the public as an absence of sufficient power by the state to implement an otherwise good idea.
Such a perception would lead the public to vote more power to the state, and would assist the rise to power of a “strong man” perceived to be capable of “getting the job done”. After these developments Hayek argued that a country would be ineluctably driven into outright totalitarianism.
For Hayek “the road to serfdom” inadvertently set upon by central planning, with its dismantling of the free market system, ends in the destruction of all individual economic and personal freedom."
It's pervasive throughout the world. Central banks, gubmint meddling, growing gubmint, subversion of liberty.
This seems to me to be a reasonable course of action to unfreeze the credit markets and restore confidence.
It is different than what was discussed. Most of the discussion was about purchasing long-term assets, which is historical cure for a liquidity crisis.
However, this promises to keep businesses afloat while banking reaches some kind of stabilization. And it’s less risky than purchasing long-term large assets.
The borrowers have no problem borrowing from the Fed. The lenders if they have cash to lend, would rather lend to the Fed right now because of confidence issues. But in many cases, they don't have cash, because of deposit outflows.
It's not, liquidity crises occur in free markets, where regulations are not sufficient to maintain confidence in the banking system. That's what has happened here. Banking reserve requirements were lowered. Banks were allowed to engage in risky behaviors. And it's resulted in a lack of confidence.
Neither the problem nor the proposed cure involves government controlling the means of production.
I thought that the Fannie Mae bailout and then the billionaire bailout was supposed to accomplish that goal. How much more "reasonble" inflation/taxes do you want to impose before you admit error?
And I would like one of you conspiracy hucksters to explain why if there is no real crisis and this is just a U.S. setup for central planning, why all of the other countries are having to intervene as well.
Why are banks in China and Ireland suddenly failing if the crisis is imaginary?
Now that nationalization of the financial sector has taken place, it’s time to put measures in place to stop outsourcing. I mean, if we’re going to turn to government to “solve” every problem, we might as well unleash it to do something that might actually help.
This is to hold the house up until the foundations have been replaced. It’s a interim measure and necessary so that your credit card works today.
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