What else do you think the authorities can do?

Question

Fed announced it would buy commercial paper. This essentially means that it will lend to non-financial companies directly in order to save the real economy, (i.e. by-pass the banks who may just simply hold off cash no matter what).

Treasury has got nearly $1Trillion at its disposal to buy whatever bad assets at (effectively) whatever price.

So in case if this still cannot stop the bleeding, what else can you think of the authority can do?

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Andrew Koenig · Accepted Answer

Be patient.-------------------------------------- is a moderated newsgroup where Moderators striveto keep the conversations on-topic for financial planning. Other postingguidelines include a request for brevity and another for trimming posts towhich we respond.  For all of the other tips and suggestions, see "FROM THEMODERATORS: Posting to ", a weekly post now on theNewsgroup.

Will · Answer

I would like to see them be punitive with banks that loan money from the Fed and don't lend out (to other banks or to companies) at least 90% of those funds. Banks have been taking the money from the Fed and immediately reinvesting the money in Treasury bills, which does no good for the general economy or other banks that do not have access to the Fed directly, and it completely circumvents the Fed's ability to use monetary policy.

HW "Skip" Weldon · Answer

Well said.-HW "Skip" Weldon Columbia, SC-------------------------------------- is a moderated newsgroup where Moderators striveto keep the conversations on-topic for financial planning. Other postingguidelines include a request for brevity and another for trimming posts towhich we respond.  For all of the other tips and suggestions, see "FROM THEMODERATORS: Posting to ", a weekly post now on theNewsgroup.

Ignoramus19789 · Answer

Making loans to companies is relatively labor intensive, you need loan officers, risk managers, attorneys, computer software and databases, this is a whole mechanism that needs to exist. The Fed or Treasury does not have that and it cannot be built overnight. I have hard times believing that they can pull it off. This is also an area that is prone to corruption.

So I am rather skeptical that the government will be able to actually make those loans.

The issue that everyone is dancing around, is that a lot of banks have negative equity due to falling asset prices and fixed liabilities. Giving them more loans would not restore that equity.

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What else do you think the authorities can do?

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