Fed to buy massive amounts of short-term debts

[dkf]

Tuesday October 7, 9:19 am ET
By Jeannine Aversa, AP Economics Writer
Fed in bold move to thaw credit markets says it will buy massive amounts of short-term debt

WASHINGTON (AP) -- The Federal Reserve announced Tuesday a radical plan to buy massive amounts of short-term debts in a dramatic effort to break through a credit clog that is imperiling the economy.

The Federal Reserve will buy "commercial paper," a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls.

The $99.4 billion daily market for this crucial financing, which relies on investors rather than banks, has virtually dried up. That has made it increasingly difficult and expensive for companies to raise money to fund their operations. Commercial paper is a way of borrowing money for short periods, typically ranging from overnight to less than a week.

The unstable situation has left many companies vulnerable. The notion under the plan is for the government to provide a "backstop" that would give companies a new place to get cash, the Fed said. The action makes the Fed a source of credit for nonfinancial businesses in addition to commercial banks and investment firms.

The Fed said it is creating a new entity to buy three-month unsecured and asset-backed commercial paper directly from eligible companies.

http://biz.yahoo.com/ap/081007/financial_meltdown.html

[whistle]

1. The Federal Reserve must be placed into bankruptcy, they have no funds with which to buy anything

...their purchases become the liabilities of the Federal Government and thus the people. Stop this shit now!

[crispini]

2. This is good.

The commercial paper market has needed a proverbial kick in the butt. This is what they should have done first, instead of that bailout thingy, which I am still not sure about.

[dkf]

3. I think you are right.

It should have been done ages ago, when the money markets started having problems.

Now they are pulling out all the stops though. And it is interesting how creative they are being.