U.S. Federal Reserve to buy up commercial paper
The Sydney News.Net
Tuesday 7th October, 2008
The U.S. Federal Reserve Board on Tuesday announced it was creating a facility to provide liquidity to term funding markets.
The Commercial Paper Funding Facility will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle that will purchase three-month unsecured and asset-backed commercial paper directly from issuers.
The Treasury believes the facility is necessary to prevent substantial disruptions to the financial markets.
The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities.
As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day.
A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households.
By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, the Commercial Paper Funding Facility should encourage investors to once again engage in term lending in the commercial paper market.
Added investor demand should lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper.
An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.
Email this story to a friend
Comments on this story
10-07-08, 02:58 PM
U.S. Federal Reserve to buy up commercial paper
There is another Article on this site that discusses how Our Government is giving a Bonus to Corporations for stealing!
They are 'making it easier for the corporations to bring home money from foreign accounts', I.E., not charge taxes! and or reduce taxes due, look the other way! Steal a lil more!
My how inventive the economic thieves have become! Remember how lil it cost for the welfare mamas?
10-21-08, 04:10 PM
Is corporate bonds considered commercial paper
I have coporate bonds in GM and Ford and I don’t understand if that is what they were talking about buying back. I’m sure I’m wrong but I thought I would ask. Thanks
10-07-08, 03:36 PM
There are 3 ways to recycle the commercial papers back to cash.
U.S. Federal Reserve to buy up commercial papers ...
There are 3 ways to recycle the commercial papers back to cash IF-AND-ONLY-IF US Government guaranteed ...
Way 1: US Government guaranteed “Money Market Fund” to basket of these commercial papers, to hold on the value as US$1.00 per share of “Money Market Fund” to the securities firms' brokerage accounts.
Way 2: Resale the US Government guaranteed commercial papers to the 3rd party’s (floating-value) High-Yield mutual funds, paying monthly dividend to the investors such as 401K account.
Way 3: Like McCAIN-PALIN’s low-tax economic package of cutting Capital Gain tax and Corporate (windfall) taxcut could let the corporations to buy back the commercial papers from US Federal Reserve to reduce its debt.
10-07-08, 07:31 PM
This should work much like conservation in the gasoline crisis does - a decreased demand for credit should ease the strain on the credit markets...
Consumers rein in borrowing
October 7, 2008: Borrowing falls, 1st time since '98; Government report shows consumer credit decreased in August, a sign of the weak economy.
Borrowing by consumers fell in August for the first time in more than 10 years as a weak economy continued to strain household budgets, according to a government report issued Tuesday. The Federal Reserve reported that consumer borrowing decreased by $7.9 billion in August to $2.577 trillion from a revised $2.585 trillion in July. The annual rate of consumer borrowing fell 3.7% last month. Credit card borrowing decreased at an annual rate of 0.8% while non-revolving borrowing, including student and auto loans, contracted by 5.4%.
Economists had expected borrowing to have increased by $5 billion in August, according to a poll conducted by Briefing.com. Tuesday’s report marks the first time consumer credit has shrunk since January 1998, when it dropped $4.7 billion, or at a 4.3% annual rate. “This month’s decline was predominantly due to a decrease in non-revolving lines of credit," said Sean Maher, associate economist for Moody’s Economy.com.
Maher added that auto loans make up the bulk of non-revolving lines of credit and that the decrease in August reflects weak vehicle sales in the month of July. “Gas prices were high in July and consumers' transportation budgets were squeezed, which translated to a weak appetite for new vehicles," he said. While the 0.8% decline in credit card borrowing was less dramatic, Maher said that revolving credit has steadily increased on a historical basis and that the dip in August was “fairly significant."
10-08-08, 08:58 AM
... financial mediaries... . !!!
When you grasp fully these words used to describe/identify the architects of 'Our Leaders’you will come to associate the greed around you that has said 'no' good medical service to All. Said, education is not for everyone, those that earn it should be allowed to pay for it. Said those the work to make the products that bring in the trillions of dollars, have no rights because they were paid for their service, that pay ends their rights. Said, as 'Managers' its their job to find the lowest costs, if this means workers in another country, to bad, but the workers were PAID.
These 'financial intermediaries' are bottom liners, stripminers, percentage takers, that have found a way to control a very lucrative Threshold Point/Critical Point in the US Society, and have no infested migrated their control process throughout the World as money lenders deemed by them selves as Business Advisors!
They gather the savings of Other Peoples, and then go about to make Loans for New Business. When a client comes to them for a Loan/Monies the Terms get set by the financial intermediaries. Terms like show us the 'Plan' and explain... . Then they make suggested changes to the 'Plan'. Changes like don’t build your plant next door to the one you have. Build it in another state. You can get state B to give you very significant tax abatements and Loan monies. Sounds somewhat like good advice, but the state is also paying the financial intermediary. This is stripmining. When the 'Plan’is put into an acceptable format for the financial intermediary, and the client is 'hyped' the financial intermediary drops the cost on the Table, THE FINANCIAL INTERMEDIARY WANTS PART OF THE OWNERSHIP, as much as 50%, I have heard of a couple cases that the demand was 60%. Neither of these very high demands is the Norm, I am sure the norm is considerably lower. The Amount is not my point. The 'Ownership', GIVEN !!, is the point. Such value becomes to the money owners, but they never see or hear about it! The financial intermediaries receive for themselves an economic profit. They may claim they worked for it, but I understand differently! Its a double abuse! And the Anwer of course given by the financial intermediary is 'don’t borrow the money'. The Problem or bind the client is now in, HIS PLAN, is their Plan! They can take the Plan and sell it to another!
Financial Intermediaries have expanded into Accounting, Banking, and Insurance Corporations!
Where Executives are stripminning huges sums for lending YOUR MONIES!
Where Greed has turned Our Society into workers loosing Jobs, homes, and way of life! While the financial intermediaries are expanding their lives around the World With the Help of Our Government Em[ployees Our Elected Officials! These moving monied people are moving to places like Dubai Shanghai, London in order to NOT PAY TAXES! Via Bribes for law changes.
Example: Carlyle Group Purchased 100 Homes for its Executives in Shanghai for 100,000,000 Dollars. Tax deductible business expense. Daddy bush gets one. Now the only way for Carlyle to make the Purchase was to bribe the Chineese Official in charge in Shanghai! Such bribes are crimes against Our Laws. Recently Executives of other US Corporations went to jail for bribing in a foreign country. Not even an Investigation into Carlyle!
10-23-08, 09:27 AM
unr wrote: I have coporate bonds in GM and Ford and I don’t understand if that is what they were talking about buying back. I’m sure I’m wrong but I thought I would ask. Thanks
Commercial paper is the money corporations borrow overnight for payroll and operating expenses when needed to cover cash flow to stay in business. You are correct, its not the same as corporate bonds which are more used to finance start-up, inventory, and expansion expenses. Anything that affects the commercial paper credit markets, affects the amount of money that is available to loan out to businesses. Constipation in the credit markets can cause companies to go under faster than they normally would.
Recession fears stall credit
October 23, 2008: Banks maintain grip on money, as fears that the global economy is entering a prolonged recession spooked lenders.
Lending rates held steady Thursday, a day after dismal corporate earnings renewed fears of a global recession. Three major gauges of the credit market showed no noticeable change in interbank and corporate lending from the day before, bucking the recent trend of loosening credit.
The overnight Libor rate rose slightly to 1.21% from 1.12% Wednesday, according to Bloomberg.com. Libor is a daily average of what 16 different banks charge other banks to lend money in London and is used to calculate adjustable rate mortgages. The higher the rate, the tougher it could be for homeowners to pay those mortgages.
Still, the overnight bank lending rate remained below the rate that the federal banks charge banks - a positive sign for the credit markets. The federal funds rate is at 1.5%. Overnight Libor spiked as high as 6.88% after the Treasury’s $700 billion bailout bill was signed into law on Oct. 3.
Longer-term lending remained tight: the 3-month Libor held steady at 3.54%, according to Bloomberg. Last week, the 3-month Libor surged to 4.82% - the highest since mid-December 2007. By comparison, it was under 3% about a month ago.
For the past two weeks, central banks around the globe have lowered interest rates and directly injected capital into the banking system. That had encouraged banks to issue more loans and make loans cheaper, as their fears about issuing loans began to subside.
Have your say on this story