A plan to address the many issues our economy is having right now is taking shape, much to the liking of the markets and exchange traded funds (ETFs).
The Federal Reserve has announced a plan to buy massive amounts of short-term debt after invoking Depression-era emergency powers, reports Jeannine Aversa for the Associated Press. The plan involves buying commercial paper, a mechanism many companies use to finance their day-to-day operations.
If you’d like a better explanation of the commercial paper market, credit default swaps and more, listen to this week’s excellent This American Life.
The commercial paper market has practically dried up, making it difficult and expensive for companies to raise money to fund their operations, leaving them very vulnerable. The Fed’s plan would give a “backstop” so the companies would have a new place to access cash.
The program will remain in effect until April 30, 2009.
The Financial Select Sector SPDR (XLF) is down so far today, as well as down 36.8% year-to-date.