Selected from the New York Times
October 7, 2008
Fed Considers Plan to Buy Companies' Unsecured Debt
By EDMUND L. ANDREWS and MICHAEL M. GRYNBAUM
WASHINGTON — The Federal Reserve announced a radical new plan on Tuesday to jump-start the engine of the financial system.
The Fed said in a statement that it would begin to buy large amounts of short-term debt in an effort to stimulate the credit markets, which have all but dried up.
Under the program, the Fed said that it would buy the unsecured short-term debt that companies rely on to finance their day-to-day activities. “This facility should encourage investors to once again engage in term lending in the commercial paper market,” the Fed said Tuesday in a statement. “An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.”
While the move will put more taxpayer dollars at risk, it underscores the growing sense of urgency felt by policy makers in a climate where lending has virtually dried up. The Commercial Paper Funding Facility, “will complement the Federal Reserve's existing credit facilities to help provide liquidity to term funding markets,” the statement said.
Also on Tuesday, European Union finance ministers gathered in Luxembourg to seek common ground to buttress the continent's banking system in the face of the financial crisis. Despite proposals from France and Italy, the European Union has eschewed any common fiscal approach to the crisis, mainly because Germany refuses to be drawn into a scheme for fear of being burdened with the costs of rescuing non-German banks.
The plan to buy commercial paper was formulated amid cascading losses in global stock markets, as the banking crisis spread across Europe and investors feared dire consequences for the world economy. The Dow Jones industrial average fell as much as 800 points before a late recovery, finishing down 369.88, below 10,000 points for the first time since 2004.
Even before bankers on Wall Street reached their desks on Monday, European stocks were plunging. The Russian stock market dropped 19.1 percent, the biggest decline since the fall of the Soviet Union. Major indexes in London and Frankfurt lost more than 7 percent; stocks in Paris fell by 9 percent. Stocks in Latin America and other emerging economies took their worst collective tumble in a decade.
Volatility reached the highest level in two decades, and oil prices fell below $90 for the first time since February.
http://www.nytimes.com/2008/10/07/business/07markets.html?_r=1&th&emc=th&oref=slogin
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Fed Considers Plan to Buy Companies' Unsecured Debt
