Money The Fed Moves to Save the Commercial Paper Market
posted by October 7 at 9:15 AMon
I demand a solution for the short-term credit crisis, and the Fed delivers. (Fear my power, and the power of SLOG!)
The Federal Reserve will create a special fund to purchase U.S. commercial paper after the credit crunch threatened to cut off a key source of funding for corporations.
Today’s action follows a slide in the commercial-paper market to a three-year low of $1.6 trillion last week as investors fled even companies with few links to the subprime mortgage crisis. Companies from newspaper firm Gannett Co. to electricity producer Southern Co. have been forced to tap credit lines or forego raising debt because of the market’s disruption.
The Fed’s efforts are aimed at “stemming the bank-run-like panic,” said Mark Gertler, a New York University economist and research co-author with Fed Chairman Ben S. Bernanke. “The immediate threat to the real economy is that large corporations are having difficulty obtaining funds via the commercial paper market.”
For small companies, that more typically borrow via lines of credit from a bank, things still sound pretty ugly. (If you own a company or work for a company that is suffering because of having a line of credit frozen, please email me at firstname.lastname@example.org.)
I like this move. Ben Bernanke, the current chairman of the Fed, seems sharp. Unlike Treasury secretary Paulson, he’s never worked on Wall Street. In the least, he’s an expert on the (first) Great Depression. Seems to be useful right about now.