The Federal Reserve Board on Tuesday announced the creation of the
Commercial Paper Funding Facility (CPFF), a facility that will
complement the Federal Reserve's existing credit facilities to help
provide liquidity to term funding markets. The CPFF will provide a
liquidity backstop to U.S. issuers of commercial paper through a
special purpose vehicle (SPV) that will purchase three-month unsecured
and asset-backed commercial paper directly from eligible issuers.
Kedrosky has a lot of interesting coverage of the current financial crisis. He observes:
As Buffett has said, everyone in the world is trying to deleverage at
once -- which is unworkable -- leaving the U.S. as the only institution
in the world that can lever up at all -- and levering up it is. I just
wish it was more obvious to me how you exit the other side of programs
like this. Would we not be better off to quickly recapitalize and
backstop some banks?
I share his concerns, but I actually kind of like the idea of bringing liquidity to main street business directly, rather than indirectly by bailing out failing financial institutions. The problem of unwinding the program is a big one. Right now, I get the sense that the financial markets are operating almost entirely on expectations of government action - will the Feds buy back mortgages, will the Feds keep the overnight borrowing window wide open, will the feds gaurantee commercial paper, how much commercial paper will they buy. This latter actually seem the least bad of a lot of other options. At least the Feds are buying good assets from good companies.