Federal Reserve to help companies by buying debt

Associated Press

Published October 7, 2008 at 7:22 a.m.
Updated October 7, 2008 at 7:22 a.m.

Text size  

• 0 Comments
• Email
• Print

The Federal Reserve announced Tuesday a radical plan to buy massive amounts of short-term debts in a dramatic effort to break through a credit clog that is imperiling the economy.

The Federal Reserve will buy "commercial paper," a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls.

The market for this crucial financing, which relies on investors rather than banks, has virtually dried up. That has made it increasingly difficult and expensive for companies to raise money to fund their operations. Commercial paper is a way of borrowing money for short periods, typically ranging from overnight to less than a week.

The unstable situation has left many companies vulnerable. The notion under the plan is for the government to provide a "backstop" that would give companies a new place to get cash, the Fed said. The action makes the Fed a source of credit for nonfinancial businesses in addition to commercial banks and investment firms.

The Fed said it is creating a new entity to buy three-month unsecured and asset-backed commercial paper directly from eligible companies.

"The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors" have become increasingly reluctant to buy commercial paper, especially longer-dated maturities.

Featured

• Denver turns 150

  

  Read about the city's history, look at old photos and see a list of influential Denverites.

• Mount Crushmore

  

  Which four Broncos greats should be immortalized on Mount Crushmore? Vote here.

• Winter Escapes

  

  Your insider’s guide to the copious joys of the coolest season.

• Rocky Multimedia

  

  The news comes alive in our videos and slide shows. Catch up on what's happening today.

• Weekend plans?

  

  Figure out things to do this weekend with the help of our entertainment calendar.

• Bronco Dean's rant

  

  Listen to Bronco Dean's pregame rant on the Raiders.

• Season To Share

  

  The Post-News Season To Share campaign provides grants to area nonprofits.

• The Rocky @ 150 Years

  

  The Rocky was there when Colorado became a state in 1876. Read our coverage.

• A Dozen on Denver

  

  And the winner is... Robert Ziegler! See the whole fiction series by clicking here.