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The Federal Reserve said it will bypass ailing banks and lend directly to American corporations for the first time since the Great Depression, and it hinted strongly at further interest-rate cuts -- a cocktail of unconventional and conventional remedies for an economy whose prognosis is deteriorating rapidly.
The historic and potentially risky move of lending to nonfinancial corporations, the latest in a string of extraordinary steps taken by the Fed over the past month, carries the government deeper into the role of propping up private markets.
Fed Makes Boldest Move Yet
In its latest move to unlock the credit markets, the nation's central banker said Tuesday it will take the extremely unusual step of buying short-term debt directly from America's largest corporations, such as GE, ExxonMobil, and Bank of America.
The Fed effort is one of the most dramatic – and potentially riskiest – steps Ben Bernanke, the chairman of the Fed, has taken in the past month in his effort to get credit flowing again through the economy. He is effectively pushing the Fed into the middle of the private market for short-term corporate loans, known as commercial paper. If it works, companies will have the loans they need to make payrolls and pay bills. If it doesn't, taxpayers could be on the hook for loans that aren't backed by any tangible assets.
The bold measure illustrates the seriousness with which the Fed chairman views the current credit crisis.
"This move shows the Fed is pulling out all the stops to restore confidence in this market,"
"This facility should encourage investors to once again engage in term lending in the commercial paper market," the Fed said in a statement. The Fed's program will continue until April 30 of next year.
The fed is playing from the depression play book now. the recession book didn't work so Bernanke is going to the book of last resort. If this doesn't work nothing will and the fall out will be worse than this earth has even seen economically. Everyone thinks the great depression was bad, This will make the Great Depression look like a mild recession. Hang on for the ride its going to be a roller coaster for a year or 2
Originally posted by pai mei
Banks in trouble - they stopped giving out money with interest - credit. People and business need money to make the economy grow.
People save them giving them money - bailout
Now banks can give money again at interest to the people.
Who needs banks ? They are the middle man between the people and the people. They are allowed to create money.