Commercial Paper Funding Facility (CPFF)
Speaking of pulling another trick out of the bag, here is the Fed statement on the latest alphabet scramble (CPFF) form of lending:
"The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve's existing credit facilities to help provide liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Federal Reserve will provide financing to the SPV under the CPFF and will be secured by all of the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the Federal Reserve Bank of New York in support of this facility." (continued below)
Markets give up 100+ gains, still unsure of what direction to take . . .
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Source:
Commercial Paper Funding Facility (CPFF)
Federal Reserve, October 7, 2008
http://www.federalreserve.gov/newsevents/press/monetary/20081007c.htm
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, this 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.
Commercial Paper Funding Facility (CPFF) Terms and Conditions (57 KB PDF)
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Additional reading:
Fed to Purchase U.S. Commercial Paper to Ease Crunch
Craig Torres
Bloomberg, Oct. 7 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAyx4qPsKSZk&
Fed Announces Plan to Buy Short-Term Debt
EDMUND L. ANDREWS and MICHAEL M. GRYNBAUM
NYT, October 7, 2008
http://www.nytimes.com/2008/10/08/business/08fed.html
Fed Moves to Thaw Credit Markets
Steven Mufson and Neil Irwin
Washington Post October 7, 2008; 10:18 AM
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/07/AR2008100700851.html
Fed to Purchase Commercial Paper In New Facility Backed by Treasury
JON HILSENRATH
WSJ, OCTOBER 7, 2008, 9:45 A.M. ET
http://online.wsj.com/article/SB122338435340511171.html
Tuesday, October 07, 2008 | 10:26 AM | Permalink
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maybe now? we'll see this:
Western nations including the United States have gradually implemented virtually all of Marx's 10 key steps toward creating a dictatorship. What are some examples can you find? Americans would be wise to study the "Ten Planks" and demand that the President and Congress abolish all laws, regulations and agencies which govern these (and all other) unconstitutional seizures of power. Communism was never intended to free man, but to enslave him; indeed the Communist Manifesto promised a "dictatorship of the proletariat" and history proved it always ended up slaughtering millions of the proletariat.
Karl Marx's "10 Planks" to seize power and destroy freedom:
Abolition of Property in Land and Application of all Rents of Land to Public Purpose.
A Heavy Progressive or Graduated Income Tax.
Abolition of All Rights of Inheritance.
Confiscation of the Property of All Emigrants and Rebels.
Centralization of Credit in the Hands of the State, by Means of a National Bank with State Capital and an Exclusive Monopoly.
Centralization of the Means of Communication and Transport in the Hands of the State.
Extension of Factories and Instruments of Production Owned by the State, the Bringing Into Cultivation of Waste Lands, and the Improvement of the Soil Generally in Accordance with a Common Plan.
Equal Liability of All to Labor. Establishment of Industrial Armies, Especially for Agriculture.
Combination of Agriculture with Manufacturing Industries; Gradual Abolition of the Distinction Between Town and Country by a More Equable Distribution of the Population over the Country.
Free Education for All Children in Public Schools. Abolition of Children's Factory Labor in it's Present Form. Combination of Education with Industrial Production.
in a clearer light(?)
don't get me wrong it isn't about 'Communism', it's about Control.
for further study, see:
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=fabian+socialists
Posted by: Mark E Hoffer | Oct 7, 2008 10:33:17 AM
Goddamn. That was a mouthful.
Posted by: rolling thunder | Oct 7, 2008 10:33:46 AM
Get those entitled little punks out of the free classrooms and back into the coal mines ASAP.
Damned meddling gov't...
Posted by: Transor Z | Oct 7, 2008 10:39:01 AM
U.S. gov begins implementing Roubini's recommendations.
Posted by: mind | Oct 7, 2008 10:45:58 AM
"The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets"
To state this another way: "What we have done so far appears to have no chance of working".
Posted by: wally | Oct 7, 2008 10:48:54 AM
Boy! Why is the govt. palling around with the WS mafias and free markets? I don't get it.
Posted by: free markets! | Oct 7, 2008 10:54:33 AM
Mark E. Hoffer, this is at least the second time you have cut and pasted this preposterous Karl Mark Top Ten List into this blog. Could you please just tell us your thoughts on the topic and spare us the 1950s Joe McCarthy trading cards? Thanks and cheers.
Posted by: Douglas Watts | Oct 7, 2008 10:54:48 AM
I love the smell of intervention in the morning...
From the point of view of changing the psychology of the markets, the CP market is key. Once that market begins to function again, we will see the short term T bills sell off, LIBOR will drop and then holders of Treasuries will start to move their money into other asset classes.
It is possible the central banks could augment this shift in psychology with rate cuts, and Friday morning would be an appropriate time for that. Whatever you say about Bernanke he is crafty, and this morning's news release was timed to upend the hedgies shorting the futures ahead of the open.
I have opined here before that the longer term Treasuries are like a tinder box now, ready to fuel a rally. Someone just lit the match. Treasury holders are going to learn there is risk in every asset. I believe there is a chance of a prolonged bear market stock rally going into the election.
Posted by: leftback | Oct 7, 2008 10:56:06 AM
Transor,
Um, I'm with Transor on this one Mark. Don't you think you're engaging in a bit of hyperbole here ? I don't see half of those items in practice at all, and a few other items don't seem particularly grievous (progressive taxation, free public education ?). And regarding a progressive tax, how is that unconstitutional ? The Constitution dictates that taxes must be uniform, and progressive taxation is uniform.
Posted by: OhNoNotAgain | Oct 7, 2008 11:04:02 AM
Barry - wasn't this one of Prof. Roubini's calls last week during the RiskMetrics presentation?
Chalk another up.
Posted by: Michael | Oct 7, 2008 11:07:54 AM
"From the point of view of changing the psychology of the markets, the CP market is key. Once that market begins to function again, we will see the short term T bills sell off, LIBOR will drop and then holders of Treasuries will start to move their money into other asset classes."
Quick question here that may be stupid:
Is this part of the Paulson plan, possibly under the "miscellaneous" category that many thought was too broadly defined ?
Posted by: OhNoNotAgain | Oct 7, 2008 11:09:20 AM
"I think these loungers need to move over here."
- First Mate Bernanke, Lido Deck, HMS Titanic
Posted by: GreggT | Oct 7, 2008 11:15:27 AM
You IDIOTS! Don’t you see? The decline in gasoline prices is going to produce a BOOM in consumer spending. The decline in commodity input prices is going to produce a BOOM in corporate profits. Liquidity injections by the Fed will produce a SURGE in bank lending.
Buy! Buy! Buy!
… and don’t forget to vote Republican in November.
Posted by: Larry Kudlow | Oct 7, 2008 11:22:58 AM
@ Gregg T: Nice one on rearranging the deck chairs.
I like the Titanic analogy myself. But it breaks down at the point where the ship slips beneath the waves, never to be seen again. If only the Titanic had a printing press.
Obviously we will still have some kind of markets and an economy once all of the bailing, intervention, lifeboats and rescue tugs are over with. Although quite a few institutions are going to drown...
Posted by: leftback | Oct 7, 2008 11:23:10 AM
the Fed is only secondarily trying to save the markets, and tertiarily (word?) the economy. their first order of business is giving McCain-Palin the best possible chance to defeat the Democrats. Bernanke-Greenspan will do anything to preserve this obviously broken laissez-faire system
Posted by: scorpio | Oct 7, 2008 11:25:13 AM
Damn those Bush administration Marxists and their proletarian ways!
Posted by: MikeBC | Oct 7, 2008 11:27:31 AM
Someone just lit the match. Treasury holders are going to learn there is risk in every asset. I believe there is a chance of a prolonged bear market stock rally going into the election.
Posted by: leftback | Oct 7, 2008 10:56:06 AM
lb,
nice read, seeing the 30-yr close below 4%, last night, should have set off Claxons! for anyone paying attention to the big picture.
http://www.thefreedictionary.com/claxon
@Douglas, what makes that list 'preposterous'?
@ONNA, if you don't see it, use some different spectacles, Myopia, in this Environment, will, otherwise, lead to making a spectacle of one's Self.
I'll expound, later. I, really, (file under: Ripley's) don't have time todo everyone's Homework for them..
http://www.thefreedictionary.com/spectacles
Posted by: Mark E Hoffer | Oct 7, 2008 11:36:15 AM
Bernanke needs to be fired. The sooner the better.
Posted by: JoJo | Oct 7, 2008 11:39:47 AM
Random thoughts:
"For every complex problem there is an answer that is clear, simple, and wrong."
"A good politician is quite as unthinkable as an honest burglar."
"Democracy is the theory that the common people know what they want, and deserve to get it good and hard."
H L Mencken
Posted by: SR | Oct 7, 2008 11:45:09 AM
@Leftback, Not to scare you, but I echo your sentiments. Nothing like flying in clear skies at 39k feet over the california coast to see the big economy down below...
Posted by: karen | Oct 7, 2008 11:47:37 AM
I'd rather have a commercial paper backstop that's actually relevant to people keeping their jobs than a subprime mortgage backstop keeping people in their overpriced shacks. The former has a chance of keeping a normal recession from getting worse, the latter just prolongs the inevitable R.E. bust.
Posted by: David | Oct 7, 2008 11:58:50 AM
Y'know, I'm getting more mystified than ever about what is going on - at least mystified in the "functional" sense, not so much as in "rich white guys are going to steal everything that's left by scaring you to death/lying to you/just mugging you" sense, I can see that one pretty clearly.
I have been told:
1) There is a lot of "bad debt" in the banking system
'Kay. I knew that, why the 8-figure (!) people didn't is obvious, they live in a bizarre bubble none of us would recognize as reality. Whatever.
2) Banks won't lend money to each other because they don't trust their co-parties balance sheet.
Strange for us in the normal world (why do banks need so badly to lend each other money?) but again OK. So voila, here comes BB and HP:
3) Since nobody trusts other people's assets, nobody can sell their assets for anything but chump change - so we have a Liquidity problem.
Well nobody liked #3 that much because we weren't so sure that the lack of trust was misplaced - that is, a lot of smart people think those assets aren't worth more than chump change in any time horizon. We therefor think it's a Solvency problem. So we understand why #4 was proposed, at least - despite the fact that it was labeled as a Liquidity fix:
4) The gummint will buy these dodgy assets.
Capitalism generally needs a war to burn off the excess production, but nobody is in the mood for WWIII, esp. given the extinction-level weaponry that can now be brought to bear. So basically the government(s) will just immoliate the assets by "buying" them, BS'ing us about them making money for us someday, but basically hoping we all forget about them. This would be great if it works, as it would spare us the horror of a major racheting up of flag-draped coffin production.
And it is a bit reassuring in that it implies BB/HP were also thinking Solvency was the problem, because there sure as hell are about a million better ways to address Liquidity (as described in many places on the internets). So they aren't entirely clueless, they just didn't dare tell the truth because of the mass freakout that would ensue. Maybe I'm being too hopeful here, but they couldn't be that stupid, could they?
But many of us still don't like #4 for some very basic reasons, most of them being along the lines of "how long do you really think the market can be kept from self-cleansing, anyway -- and how much worse will each delay make it?"
Then something like this comes along:
5) Credit is "frozen". Something called in a hand-waving way "midsize and large corporations" cannot continue to "finance current operations" because commercial paper goes a-begging. Also muni bonds and the like, same problem.
Now I start to totally feel like I'm being zoomed. Fine if I'm a bank and, understanding the sleazy company I keep, want to redline other banks. Fine if I don't want even the whiff of any more home mortgages on my books.
But I need to lend money. Maybe I wouldn't buy paper from GM, but I sure as hell would from Honda. There are plenty of good companies out there -- and municipalities always have the ability to tax.
So WTF is going on?
Posted by: a different chris | Oct 7, 2008 12:04:50 PM
Mark
@ Dona did not say or wrote anything disparaging that I can see?
I was working in Chicago when the city of NY was bankrupt, Time square was exhibiting the compounded US National debt every second ,Colombia area was not a recommended stay, Grand Central a reminder of the grapes of wraith and then time and intelligence found their way.
Posted by: Philippe | Oct 7, 2008 12:08:19 PM
"I love the smell of intervention in the morning..."
leftback, that is too funny, I love that movie.
Posted by: me | Oct 7, 2008 12:55:52 PM
Mark E. Hoffer, this is at least the second time you have cut and pasted this preposterous Karl Mark Top Ten List into this blog. Could you please just tell us your thoughts on the topic and spare us the 1950s Joe McCarthy trading cards? Thanks and cheers.
Second time?! It's a freakin' daily event! It's not that enlightening.
Posted by: Mr. Klubnika | Oct 7, 2008 12:57:07 PM
