Fed Makes Boldest Move Yet - Will Lend Directly to Corporations

Fed Will Lend Directly to Corporations

The Federal Reserve said it will bypass ailing banks and lend directly to American corporations for the first time since the Great Depression, and it hinted strongly at further interest-rate cuts -- a cocktail of unconventional and conventional remedies for an economy whose prognosis is deteriorating rapidly.

The historic and potentially risky move of lending to nonfinancial corporations, the latest in a string of extraordinary steps taken by the Fed over the past month, carries the government deeper into the role of propping up private markets.

Emphasis mine.

The rest of the above WSJ article is behind the pay wall but this is being widely reported.

For example:

Fed Makes Boldest Move Yet

In its latest move to unlock the credit markets, the nation's central banker said Tuesday it will take the extremely unusual step of buying short-term debt directly from America's largest corporations, such as GE, ExxonMobil, and Bank of America.

The Fed effort is one of the most dramatic – and potentially riskiest – steps Ben Bernanke, the chairman of the Fed, has taken in the past month in his effort to get credit flowing again through the economy. He is effectively pushing the Fed into the middle of the private market for short-term corporate loans, known as commercial paper. If it works, companies will have the loans they need to make payrolls and pay bills. If it doesn't, taxpayers could be on the hook for loans that aren't backed by any tangible assets.

The bold measure illustrates the seriousness with which the Fed chairman views the current credit crisis.

"This move shows the Fed is pulling out all the stops to restore confidence in this market,"

"This facility should encourage investors to once again engage in term lending in the commercial paper market," the Fed said in a statement. The Fed's program will continue until April 30 of next year.

Emphasis mine.

EXXON? !!!
The poster boy of record profits? !!!
EXXON will get FED help??? !!!

I can't begin to describe the implications of this kind of move because... well... my head is spinning.

Not only is the FED trying to solve a problem caused by low interest rates by lowering interest rates (all together now! ), and bailing out their wall street buddies leaving taxpayers on the hook for the tab, but now they will be doing it for their corporate buddies in the broader economy.

We've all been punked... hard!!
.

[edit on 10/8/2008 by Gools]

If this doesn't promote the fear, in a free market system, nothing will.

I am with you, this hit me almost as hard as the bailout. No wonder no one is going long on treasury's anymore. This is insane.

The fed is playing from the depression play book now. the recession book didn't work so Bernanke is going to the book of last resort. If this doesn't work nothing will and the fall out will be worse than this earth has even seen economically. Everyone thinks the great depression was bad, This will make the Great Depression look like a mild recession. Hang on for the ride its going to be a roller coaster for a year or 2

And once again. it just didn't help at all.

We are in a world of sheets, tangled up in a mess no one can unravel, and quite frankly it's at the point where everytime any of "them" open their mouths it just tanks further.

Bail Out Bill - TANK
Fed Rate Cut - TANK
This - TANK

I'm so over this being over

Why the hey couldn't they just have gone to economists (including Noble Laureates) instead of bankers that offered solutions before we were this far gone. WHY????

Tonight the world is imploding, and it's all our fault (the US).

you wonder why Bernanke was appointed after greenspan left.

he is supposed to be a scholar of the great depression, gee how ironic

if you want to look into the Fed's play book you may want to check out

this titled "monetary policy at the zero bound" Ben B co-wrote this playbook back in 2004.

the first link is 'the economist's" summary of the article

economistsview.typepad.com...



also lot's of wealthy people (i.e the smart money...the same group who got out of stock's for bonds last year) are pilling into are hoarding gold bullion

here's a explanation why

www.itulip.com...

This explains the pig pile into gold by the well-heeled (see Wealthy investors drain supplies of gold by hoarding bullion bars). If not only the US but economies worldwide face deflationary forces, and currency depreciation is the final "foolproof way out" as espoused by the current economics orthodoxy, then competitive currency depreciation is the logical end game as governments pull out the stops to prevent deflation

i.e govt's all devaulating their currency's as fast as they can.

can they print faster than the defaults and where will the printed money flow? that is the question. with unions being weak not sure if will flow much into wages. In a few months, The Amero will soon gain mainstream approval for discussion.

Also the fed is trying to artificially fix the libor rate lower because a large amount of option ARM mortgages are about to re-set much higher (akin to dropping a grenade in the credit crisis hotel)

as far as the Fed lending/buying stakes in corporations when Pauslon spoke about this on wednesday the market TANKED, investors seem troubled that share holders of these corporations will be harmed, and further more that this will not spur these banks to lend unless the "fed's" take a 51% or greater share in these banks. I could be wrong about this but i don't think there is a quick solution to the giant deleveraging of the credit bubble.

this is a great site that often get's to the beef of the matter

it is also offering a free trial period (which i was quite suprised to read)

www.rgemonitor.com...

it talks about big things getting sorted out Friday, concering the derivatives exposure of Lehman and some problemo's that are associated with that (100's of billions of losses!)

also bigpicture.typepad.com...

states that the massive "rolling" of markets for the last week was directly due to the fallout from lehman's failure and the CDS exposure and counterparty's claims that they are faced with and the losses those company's may have to swallow.

this will be figured out (i.e loser's and price of losses) between tommorrow at 945 am and 2pm ) get ready for a fun ride


[edit on 9-10-2008 by cpdaman]

[edit on 9-10-2008 by cpdaman]