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Treasury Secretary Henry Paulson is working on setting up a government facility to take on bad debts from financial institutions to prevent a worsening of the global credit crisis, Wall Street sources have told CNBC.
The facility would be similar to the Resolution Trust Corporation, which was set up in the late 1980s to take on all the failed thrift assets during the savings and loan crisis, these sources said.
Originally posted by bodrul
i dont see why the people who run these companies and people that finance them (shareholders)
dont lose all their assets and money first before they are bailed out
Originally posted by infinite
Money market funds are going to be guaranteed by the United States.
$50 billion is being made available(backed by US gold reserves, I believe)
"Paying interest on bank reserves would allow the Fed to enlarge the asset size of its balance sheet without pushing the funds rate to zero," Stone explained. "The interest rate paid on bank reserves would effectively serve as the floor on the funds rate."
So if the Fed paid 1.75% interest on reserves, the effective federal funds rate couldn't go below 1.75%. Fed researchers believe monetary policy would be much more effective with this approach, because the Fed could more directly control the most liquid asset in the economy. The Fed would no longer have to worry that policy could become impotent as the target rate approaches zero.
Despite lower funds, the Fed will not only be responsible for keeping inflation low and promoting full employment, but also for stabilizing the financial system and minimizing losses to taxpayers.