Fed to lend directly to companies

This may be the biggest economic development since the Great Depression.

WASHINGTON (AP) -- Frantically trying to stop the bleeding on Wall Street, the Federal Reserve took a first-time step Tuesday to get cash directly to businesses and hinted that interest rates could come down soon. Stocks continued their free fall anyway and hit new five-year lows.

The central bank invoked emergency powers to lend money to companies outside the financial sector and buy up mounds of commercial paper, the short-term debt that firms use to pay for everyday expenses like salaries and supplies.
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To that end, the Fed announced it would begin buying companies' short-term debt. The powers were bestowed during the Depression as part of the Federal Reserve Act.

The government's bailout package is aimed at thawing lending by buying bad mortgage-related debt off the books of troubled financial institutions. The idea is that the banks would then be in a better position to lend and get the economy moving.

Commercial paper borrowing usually ranges from overnight to less than a week. But in the current climate of mistrust, the market has dried up considerably.

The action makes the Fed a crucial source of credit for nonfinancial businesses in addition to commercial banks and investment firms -- and also exposes it to risk because so much of the debt would not be backed by collateral.

Here's a question for everyone: What does it mean when all the companies in your country owe money to the Central Bank?

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very good question!

There is so much going on right now that it's hard to even comment on it intelligently.

My immediate thoughts were if businesses can get loans from the central bank why not nationalize the banks generally (which Sweden did and it worked) and why would anyone bother to go to a regular bank under these circumstances.

Then, because it's the Fed....what happens if these people do not pay back their loans...although if the IRS is any indication the Fed could own everything, yet default because it's plain out of money? I raised that earlier and while it seems completely improbable....why not happen here, why does everyone believe the US is immune?

But, I think it's contagion (as said earlier) and nothing the Fed does at the moment is going to make a dent...it's like waves of waves reverberating upon each other bringing down the house.

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