Fed to fund short term loans? Chime in Your Thoughts October 7, 2008

So in a major move, the feds decided to buy the debt in a move to help stimulate the credit crunch.You have to read the press release of the plan here but here below is the article in UsaToday. Here is an excerpt below..

The Federal Reserve announced Tuesday a radical plan to buy short-term debt in an effort to break through the credit clog that threatens the economy.

The Federal Reserve, invoking Depression-era power under “unusual and exigent circumstances,” will buy commercial paper, a short-term I.O.U. that companies issue to finance day-to-day operations, such as purchasing supplies or making payrolls.

The $99.4 billion daily market for this crucial short-term financing has virtually dried up. Most investors have become too jittery to buy commercial paper for longer than a couple days.

Is this Crisis Really New? October 7, 2008

We wouldn’t be doing our job if we couldn’t report some articles that are meant to give you a balanced view of what we are going through. The sky is falling right? Well read this article.

Dennis Walsh, President and CEO of Money Concepts, wrote this.

Let’s look at a timeline of a crisis:

·         In 1938, the Federal National Mortgage Association (Fannie Mae) was formed as a government agency designed to fill some gaps in mortgage lending left by the wave of bank defaults in the Great Depression.  Fannie Mae could now purchase and sell mortgages to financial institutions that wished to diversify their regional mortgage portfolios.

·         In 1968, the Congress, in an effort to get Fannie Mae’s liabilities off the government balance sheet, sold them off to private investors.  Fannie Mae, a private company could now also raise money through bond issues (guaranteed by the government) and distribute profits to executives and shareholders.  This structure allowed for private profits and public losses.

·         In 1970, to deal with regulatory problems in getting mortgage money to California, the Federal Home Loan Mortgage Corporation (Freddie Mac) was formed as a government agency.

·         In 1977, the Community Reinvestment Act became law.  This law was intended to make credit services available to low income individuals and individuals in urban areas.

·         In 1989, Freddie Mac was sold to private shareholders.