If the Fed ends up guaranteeing commercial paper and/or interbank loans. Too many people are listening to Polonius.
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It’s been argued[1] that interbank loans have frozen up because banks can get money from the TAF and other Fed lending facilities instead. Cutting back direct Fed lending in favor of assuming some/all of the risk of direct interbank loans would get the interbank loan market moving again. There isn’t much of a moral hazard problem here, either, as it’s already been made clear that bank failures will be met with bailouts.
Indirect and responses have so far failed to get Libor down to reasonable levels. The Fed could do a lot worse than to remove the risk premium from the interbank market.
[1] http://www.nakedcapitalism.com/2008/09/libor-surges-to-nearly-7-but-us-stock.html
A little off topic:
The long term trend since the start of industrial revolution has been for lower interest rates does this not make banks less important as the inefficiency of the bank makes up for higher returns that they can generate by lending money multiple times. For example With the Vanguard Total market fund yield at about 2% why would a public company borrow money when they can sell stock and get equity partners who share more in the risk? Why would a person borrow money at 6% and have money in an IRA? Why wouldn’t people use more rent to own in housing. (Rent to own seems to me align owner and renter interests as well as mortages.) REITs could in the future provide housing cheaper as acceptable yields fall. With so much money invested will banks become less important?
So $176 billion in CP issuance is a frozen market? Or will the data tomorrow show a huge drop?
http://www.federalreserve.gov/releases/cp/volumestats.htm
I proposed from the beginning that the government forget about real estate and immediatedly guarantee high-quality industrial commercial paper. The reason why we supposedly needed emergency action was because of the contagion effect in short-term lending, which the Paulson plan does nothing to address–it’s too slow and too indirect. If you tell me the patient is about to bleed to death, first stop the bleeding and then see if any other actions need to be taken.
BUSH THREATENED CONGRESS WITH MARTIAL LAW TO GET THE HOUSE TO GIVE UNLIMITED AUTUORITY OVER US!
Someone is off their meds.
Again.
nameless coward,
Which part do you disagree with?…they did threaten martial law to congressmen. The Youtube video shows one congressman talking about it on cspan. I have heard other itnerviews that confirm the story.
Or do you disagree with the “unlimited authority over us” claim? unreviewable ability to borrow against the credit of the american taxpayer any amount up to 700 billion….and then buy ANYTHIN the treasurer wants and then sell the assets to anyone they want at any price they want and not have it reviewable by congress and then buy more sceurities so long as teh total held < 700 billion = unlimited financial authority. The guidelines are so broad that they could do prety much ANYTHING they want.
so maybe you are careful not to get off your meds, but I’ll keep my mind clear thank you.
If we need the government to save the economy, does that mean capitalism has failed?
“If we need the government to save the economy, does that mean capitalism has failed?”
Failed? Has it been tried recently? Have I missed something?
What is the difference between your claims and the communist claims.
Not much? They’re both correct.
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