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Sic Semper Tyrannis

Tuesday, October 07, 2008

Feds moving into short-term debt business

I'm sure it's nothing. Minor. A necessary but temporary nudge, just to keep the markets flowing.

So why's the libertarian in me crapping his pants right now?
There is growing pressure for the U.S. government to do more beyond the $700 billion financial bailout package President Bush signed into law Friday.
I read a few bloggers doubting that $700 billion would turn out to be enough. The government's first cost estimates are never the same as the second ones, or the last ones.

Are you paying attention, Healthy Wisconsin supporters?

Anyway, the Fed is planning to go into short-term debt, because the credit industry is drier than that sandwich I left in my lunchbox over the weekend.

You have to read down into the story to find the gory details.
Fed officials said they'll buy as much of the debt as necessary to get the market functioning again. They refused to say how much that might be, but they noted that around $1.3 trillion worth of commercial paper would qualify.
That doesn't mean they're going to go out and spend $1.3 trillion – it's short-term debt. Basically, the Fed is taking the place of financial institutions that would normally lend the money.

So that's not so bad, I guess. But, again, the libertarian in me needs to change his shorts. It's at times like this that I find my relative ignorance comforting.
The Fed said it planned to stop buying commercial paper on April 30, 2009, unless the Federal Reserve board agrees to extend the program.
Everybody put that date on your calendars. Do it now.

Let's hope the Fed does a better job evaluating creditors than the actual credit industry was doing.