Fed Announces Plan to Buy Short-Term Debt

[kentuck]

What's it all about? Basically, they are drowning and have no idea what to do.
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http://www.nytimes.com/2008/10/08/business/08fed.html?hp

<snip>
The Fed said in a statement that it would begin to buy large amounts of short-term debt in an effort to stimulate the credit markets, which have all but dried up.

Under the program, the Fed said that it would buy the unsecured short-term debt that companies rely on to finance their day-to-day activities. “This facility should encourage investors to once again engage in term lending in the commercial paper market,” the Fed said Tuesday in a statement. “An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.”

While the move will put more taxpayer dollars at risk, it underscores the growing sense of urgency felt by policy makers in a climate where lending has virtually dried up. The Commercial Paper Funding Facility, “will complement the Federal Reserve’s existing credit facilities to help provide liquidity to term funding markets,” the Fed statement said.

<snip>
“There is a growing recognition that not only has the credit crunch refused to be contained, it continues to spread,” said Ed Yardeni, an investment strategist. “It’s gone truly global.”

<snip>
On Monday, the Fed announced that it would once again redouble one of its key emergency lending programs, increasing the size of its Term Auction Facility to $600 billion, from $300 billion. On top of that, the central bank plans to provide an additional $300 billion to banks to meet their end-of-the-year cash needs.

.....

To pay for its burgeoning responsibilities, the Fed has no choice but to keep printing more money. To prevent that flood of new money from reducing the central bank’s overnight interest rate to zero, the Fed also announced on Monday that it would start paying interest on the excess reserves that banks keep on deposit at the Fed.

<snip>
But the possibility of propping up the vast market for commercial paper could represent an undertaking even broader than the Treasury Department’s plan to buy as much as $700 billion in mortgage-backed securities.

<snip>
But the effort is fraught with legal complexities. Though the Federal Reserve has sweeping power to create money and lend it out, experts said it was normally prohibited from buying assets that could lose money.

One way around that legal limitation would be to provide money to a separate legal entity that would do the buying and investing on the Fed’s behalf. That would be similar to Maiden Lane Funding L.L.C., a special-purpose entity that officials created last spring to hold $29 billion in hard-to-sell securities from Bear Stearns.

....more

[kentuck]

1. Did you catch this point?

"But the possibility of propping up the vast market for commercial paper could represent an undertaking even broader than the Treasury Department’s plan to buy as much as $700 billion in mortgage-backed securities." ????

[Subdivisions]

2. They've also decided to

http://ftalphaville.ft.com/blog/2008/10/07/16721/fed-eyes-drastic-move-into-unsecured-loans/">make UNSECURED loans.

They are deperate. Like someone trying to escape a shark attack desperate.

[kentuck]

3. "unsecured" loans?

Does that mean we will not get that "investment" back?? :shrug:

[dixiegrrrrl]

4. I understand what they are doing

I just can't figure out why in hell they are doing it.

Buying debt with decreasingly valued dollars makes no sense at any level.
Printing fiat money has always been part of the problem.

It's a classic picture of rigid thinking.

By now even morans are beginning to understand that mortgages have no value.