Nothing is working. Last week they passed the bailout, and today the Federal Reserve doubled the size of the Term Auction Facility but the commercial paper markets remain at extreme fear levels.
“Neither a borrower nor a lender be,” Polonius said in Shakespeare’s Hamlet. He’d be happy with the commercial paper market where outstanding commercial paper tumbled $94.9 billion, or 5.6 per cent, according to Bloomberg. Overnight rates, which jumped 0.94 percentage points to 3.68 per cent, are the highest they’ve been since the House rejected the bailout bill a week ago.
Is it possible the Fed could guarantee commercial paper markets? Some are saying that this is what it would take to unfreeze the market but if so, we’d better get used to the freeze. Even with today’s drop, there’s $1.6 trillion of commercial paper outstanding. That seems like an awfully big pill for even the joint operations of the Treasury and the Federal Reserve to swallow.