October 22, 2008
The Fed is Still At It
Posted by David Zaring

On what looks like another bad day for Wall Street, the Fed has announced yet another initiative.  It is going to up the interest paid to member banks.  Yesterday, it announced another purchase program for money market funds.  It did that by creating a facility that would both finance and purchase commercial paper and short term debt - the debt that corporate America most needs to be able to roll over, and increasingly cannot.  The program is a public-private effort, the Fed says, though the public part is most obvious to this reader. 

All of this has pulled the Fed into a big new role on short term debt only partly used by the banks it regulates, and unregulated by the SEC.  The Fed also enacted an initial money market financing facility just as Treasury announced its short-lived money market insurance program.  Congress killed the insurance program in the bailout bill, apparently at the behest of the banking industry, which feared the competition from money market funds, but the facility lives on.

Okay, money markets, increased interest, commercial paper, bailout implementation, liquidity injections, international harmonization ... It is hard to process all the things that the Fed is doing, though perhaps it is worth noting that a large percentage of these diverse initiatives are based on the one paragraph long powers provided by section 13(3) of the FRA.

I doubt I'd be able to begin to keep track, by the way, if Clusterstock wasn't on the case.

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