The Federal Reserve announced today that it will begin a program to purchase short-term debt to help companies fund their day-to-day operations and to encourage companies to resume lending to each other and their customers. Specifically, the Federal Reserve plans to establish a separate entity, the Commercial Paper Funding Facility, to begin purchasing three-month unsecured and asset-backed commercial paper in an undisclosed amount from eligible issuers. Commercial paper is short-term debt, which is borrowed for brief periods such as overnight and for less than a week. As more companies have stopped buying commercial paper due to the effects of the unstable economy, the rates for long-term debt have increased.
The US Treasury Department is working with the Federal Reserve on the program and has said that it is “necessary to prevent substantial disruptions to the financial markets and the economy.” The Treasury Department will provide the funds to the Federal Reserve Bank of New York in order to support the program, which is entirely separate from the recent $700 billion bailout law. The program will continue until April 30, 2009, unless extended.
Source: http://biz.yahoo.com/ap/081007/financial_meltdown.html?.&.pf=banking-budgeting
