Fed Will Buy Up Short-Term Debt to Boost Credit

New plan to ease credit pushes the central bank toward a commercial bank role
By Clay Dillow,  Newser Staff
Posted Oct 7, 2008 8:35 AM CDT
An Electronic board shows a drop in the market in the S&P 500 futures trading pit at the CME Group in Chicago, Monday, Oct. 6, 2008. (AP Photo/Paul Beaty)   (AP Photo/Paul Beaty)
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(Newser) – The Federal Reserve today launched a new plan to buy up companies’ unsecured short-term debt in yet another effort to unfreeze the credit markets, the New York Times reports. Underscoring a sense of urgency on Wall Street as the crisis spread across Europe and Asia yesterday, the radical plan would essentially permit the Fed to lend directly to businesses.

The amount of commercial paper in circulation for financing day-to-day operations of  corporations has dramatically shrunk, falling 11% in just the last 3 weeks.  But buying commercial paper would put the Fed in possession of assets that potentially could lose value, normally prohibited. One senior bank executive told the Washington Post the move was "like taking the fire sensors out of the building."