Commercial Paper Market Action (Finally) Begins Credit Thaw

For those who wondered what my Commercial Paper Market obsession was about:

full text

The Fed’s drastic move had a nearly immediate impact: Yields on top-rated overnight U.S. commercial paper dropped 0.74 percentage points, to 2.94%, according to Bloomberg Financial Markets. And rates on three-month Treasury bills–the ultimate safe asset to which big investors, like money-market funds, have been flocking–rose above 1.0% on Tuesday for the first time in weeks. Rising yields suggest demand for government debt is easing. Just Monday, yields were 0.43%.

The $700 billion and the rest of it are worthless if this doesn’t work.

As I’ve ranted about before, the first act of the govt/fed should have been to immediately and directly participate in the Commercial Paper market. They are now doing it and it’s working at first glance, but only after a ton of unnecessary damage was done.

Through delaying this action because of the debate on all the other bailout points, we’ve lost trillions of dollars of market value. I hope this isn’t too little too late now that we have been allowed to enter panic and free-fall. My fear is that the market conditions will exist for recovery and that will be roundly ignored because of paranoia.

What everyone should be reminded of is that in this market, bravery and timing will be greatly rewarded: the earlier you get back in, the better you will do. Just not too early ( the dilemma ) – and everyone is waiting at the pools edge, using others’ actions to guide them instead of testing the waters themselves.

My schattenfreud has worn off entirely now that my IRA is worth 50% of what it was 3 weeks ago. Good luck to us all.

3 Comments

idredit on October 8, 2008 at 4:00 pm

Humpty Dumpty had a great fall. All the kings horses could not put Humpty Dumpty back together again.

Too Little too late to avoid the economic depression.

Prof. Nouriel Roubini who called this right on the hour in 2006. Feds are belatedly adopting his recommendations. Today’s missive:

“I will argue – in my next article – that one should be pessimistic about the ability of policy and financial authorities to manage and contain a crisis of this magnitude; thus, one should be prepared for the worst, i.e. a systemic financial crisis.”

[.]

Last week I suggested, among many other policy options, the need for a coordinated monetary policy rate cut. That cut arrived this morning with Fed, ECB and other central banks cutting their policy rates by 50bps. This action is necessary but only cosmetic and it is too little too late.[.]

50bps is also too little in the US given the damage to the real economy of the financial shocks of the last month; during the last recession the Fed cut the Fed Funds down to 1%; we are still 50bps away from that level. But at the end of this cycle – as I argued before – the Fed Funds will be closer to 0% than to 1%.

Policy rate cuts will have limited effects as they don’t resolve the fundamental problem in markets that is keeping money market spreads relative to safe rates so high, i.e massive counterparty risk. To resolve that triage of insolvent banks and recapitalization of solvent banks, together with massive injections of liquidity in non banks and the corporate sector are necessary; yesterday plan to support the commercial paper market – something I recommended last week – is a step in the right direction.

Can a Central Bank go broke? Can a government declare national bankruptcy?

Ask Iceland.

Now the big corporations are our true owners. Mission achieved.

idredit on October 8, 2008 at 7:49 pm

the printing of trillions continues–

refreshed from their $440,000 luxury retreat, AIG gets an additional $38 billion of taxpayer’s dollars

Oct. 8 (Bloomberg) — The Federal Reserve will provide as much as $37.8 billion in additional liquidity to American International Group Inc.’s regulated insurance units after rescuing the company with an $85 billion loan last month.

the previous week the Feds injected into the system $1.25 trln.

This week a $700 bln bailout facility in hand plus the Feds injection on Monday $900 bln add AIG, Fannie, Freddie and commercial paper.

What’s a few trillions?

Who’s next?

It’ll all end badly.

dada on October 8, 2008 at 7:57 pm

ain’t this a kick in the head;

AIG, gets another $38bn:

…one day after it was revealed that AIG had sprung for a $440,000 spa vacation shortly after getting an $84 billion government-loan bailout comes this report: The government is loaning AIG another $38 billion.

AIG, the world’s largest insurer, said it has already drawn down $61 billion on its $84 billion line of credit from the government. AIG’s financial products division got into the mortgage-backed securities market and incurred billions in losses, sending the entire company teetering toward bankruptcy. The $84 billion loan was meant to help prop up AIG.

The New York branch of the Fed Reserve will borrow $37.8 billion in investment-grade securities from AIG in exchange for the cash.

but BushCo™ doesn’t want to talk to pelosi about spending any of those “magic rescue dollars” on the commoners:

Pelosi talking about a new economic stimulus package:

…the San Francisco Democrat talking in Denver about the possibility of a $150-billion booster shot for the economy, and calling the House back into session after the election to pass it.

That would be nearly three times the size of a package kicked around earlier–and approved by the House last month without gaining any support down Pennsylvania Avenue at the White House–and about the size of the late spring stimulus.

where in hell is all this money supposed to come from? the government printing office must be running 24/7/365.

idredit on October 8, 2008 at 4:00 pm

Humpty Dumpty had a great fall. All the kings horses could not put Humpty Dumpty back together again.

Too Little too late to avoid the economic depression.

Prof. Nouriel Roubini who called this right on the hour in 2006. Feds are belatedly adopting his recommendations. Today’s missive:

“I will argue – in my next article – that one should be pessimistic about the ability of policy and financial authorities to manage and contain a crisis of this magnitude; thus, one should be prepared for the worst, i.e. a systemic financial crisis.”

[.]

Last week I suggested, among many other policy options, the need for a coordinated monetary policy rate cut. That cut arrived this morning with Fed, ECB and other central banks cutting their policy rates by 50bps. This action is necessary but only cosmetic and it is too little too late.[.]

50bps is also too little in the US given the damage to the real economy of the financial shocks of the last month; during the last recession the Fed cut the Fed Funds down to 1%; we are still 50bps away from that level. But at the end of this cycle – as I argued before – the Fed Funds will be closer to 0% than to 1%.

Policy rate cuts will have limited effects as they don’t resolve the fundamental problem in markets that is keeping money market spreads relative to safe rates so high, i.e massive counterparty risk. To resolve that triage of insolvent banks and recapitalization of solvent banks, together with massive injections of liquidity in non banks and the corporate sector are necessary; yesterday plan to support the commercial paper market – something I recommended last week – is a step in the right direction.

Can a Central Bank go broke? Can a government declare national bankruptcy?

Ask Iceland.

Now the big corporations are our true owners. Mission achieved.
idredit on October 8, 2008 at 7:49 pm

the printing of trillions continues–

refreshed from their $440,000 luxury retreat, AIG gets an additional $38 billion of taxpayer’s dollars

Oct. 8 (Bloomberg) — The Federal Reserve will provide as much as $37.8 billion in additional liquidity to American International Group Inc.’s regulated insurance units after rescuing the company with an $85 billion loan last month.

the previous week the Feds injected into the system $1.25 trln.

This week a $700 bln bailout facility in hand plus the Feds injection on Monday $900 bln add AIG, Fannie, Freddie and commercial paper.

What’s a few trillions?

Who’s next?

It’ll all end badly.
dada on October 8, 2008 at 7:57 pm

ain’t this a kick in the head;

AIG, gets another $38bn:

…one day after it was revealed that AIG had sprung for a $440,000 spa vacation shortly after getting an $84 billion government-loan bailout comes this report: The government is loaning AIG another $38 billion.

AIG, the world’s largest insurer, said it has already drawn down $61 billion on its $84 billion line of credit from the government. AIG’s financial products division got into the mortgage-backed securities market and incurred billions in losses, sending the entire company teetering toward bankruptcy. The $84 billion loan was meant to help prop up AIG.

The New York branch of the Fed Reserve will borrow $37.8 billion in investment-grade securities from AIG in exchange for the cash.

but BushCo™ doesn’t want to talk to pelosi about spending any of those “magic rescue dollars” on the commoners:

Pelosi talking about a new economic stimulus package:

…the San Francisco Democrat talking in Denver about the possibility of a $150-billion booster shot for the economy, and calling the House back into session after the election to pass it.

That would be nearly three times the size of a package kicked around earlier–and approved by the House last month without gaining any support down Pennsylvania Avenue at the White House–and about the size of the late spring stimulus.

where in hell is all this money supposed to come from? the government printing office must be running 24/7/365.

Commercial Paper Market Action (Finally) Begins Credit Thaw

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