It didn’t look good when we went to bed last night, but now it looks better. Japan closed down 3%, but the FTSE is now flat. Why? A massive new rescue plan the Fed is considering: buying unsecured commercial paper directly from businesses.
NYT: Under a proposal being discussed with the Treasury Department, the Fed could buy vast amounts of the unsecured short-term debt that companies rely on to finance their day-to-day activities, according to officials familiar with the discussions. If this were to happen, the central bank would come closer than ever to lending directly to businesses.
The goal? Help loosen up the credit markets, which (mostly) continued to tighten overnight.
The unsecured commercial paper market is about $885 billion, about half of the $1.6 billion total commercial paper market. $885 billion is a big number, even for the Fed.
So who will be saved and who will get asphyxiated? Not clear. But at least this solution addresses the problem, which is that no one is lending to each other any more.
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