The real economy with assets one can readily price is having no great difficulty raising CP from the large volume of private capital sitting this one out. It is the _financial firms_ trying to finance or rollover their securitized LBOs, MSBs, ABSs and the like which are having severe trouble, and the run-of-the-mill financial participants who are choking. I’m not saying this to suggest that ‘we can do without the financials;’ we can’t. But the issue is that those financials have dodgy, non-transparent numbers, exposure to all kinds of crap which neither they nor anyone else can price, and had become addicted to cheap short money in the last decade. Sooo we need to get failed funds out of the market, and to get bogus assets marked down. Come that day, there will be much less stress floating CP. But when financial firms look from the outside to be made of TP which everyone knows isn’t clean, of course no one wants to lend them a hand.

Credit spreads do not imply that the world has come to and end: it hasn’t, for firms with real assets. For the FIRE participants, their world has down a rollover, from Olympus to Tartarus. The longer they take to price down their trash, the longer they’ll stay there sucking sewage.

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=10&year=2008&base_name=the_plunge_in_commercial_paper

This is what happens when you have an economic philosophy that is privately financed without an exit strategy.
Yes, I asked if this is the end of capitalism.

Don’t you ever wonder why it wasn’t somebody’s job to make sure that this thing didn’t happen?
Monetary inflation driving an uneconomic explosion in housing stock and prices, and derivatives thereof, that was destined to fall apart in a very hurtful way.

Wasn’t anybody in charge of the national economy to see that it would grow in a way that avoided this painful economic episode?

anon at 4:58, a.k.a. ‘the economy’ calls the capital shortage, or hoarding, crisis as a demand to adopt Paulson’s plan.

Though the comment was aimed at Yves, it was obviously meant mostly for those of us who are not “the economy”.

And it’s hard to argue with a capital shortage, isn’t it.

In 1913, Congress passed the Federal reserve Act and gave THE MONEY POWER to a cartel of private bankers who have manipulated the financial system to the point we now have in front of us.
Complete with overt threats from the bankers that they will take us all down without another bailout, after which there will be another.
The 1913 deal required the FED bankers to provide for economic and price stability.
How does it feel?
The crisis on Main Street can best be effected through a direct infusion of capital on that level.
A direct infusion of government-issue, debt-free credits paid to the people of the United States.
That is all that is needed to keep the US economy going.
One thing at a time.

>> This is like WaMu and Indy Bank looking to build cash reserves or to move working capital to places where it may be liquid in the short-term.

It seems like Treasury would try to change the yield curve at this stage and stop acting like we have a super-strong recovery about to kick in as Bush leaves office. That political bullshit has to stop, i.e, the yield curve should force capital into the long end and force the short end buyers to think longer term rewards. Providing opportunity in safe long term yields would act like candy and take short term speculation fever out of the market — then again, I have a 5th grade education and sniff glue…

Biz and consumers can’t get loans to finance normal operations, ergo, their operations stall.

If operations stall, ergo, there is less money available to repay whatever you owe.

Lenders, seeing their fears confirmed, get even more fearful, ergo, they hoard even more.

This is the classic vicious circle, and it is already activated.

Pray inform this non-economist non-financier poster how is the Paulson plan suppose to address this problem?

I CANNOT find any instance where the Secretary of the Treasury gave a clear explanation of how this is supposed to work, and what is the likelihood that it’ll work.

This is the economy pounding its fist on the table, demanding
Congress pass Paulson’s plan. Will you now reconsider your opposition? Or would you still wait for a “better” plan, a “more considered” plan, a “more trustworthy” plan, a “more detailed” plan, a new president, a new treasury secretary, a new moon,…

The plan is the plan and Paulson is the guy. They are both the best we have “right now”, and “right now” is when we need to do something because the costs are only going to increase (see Buffett’s interview on Charlie Rose where he makes exactly this point).

They also included a chart they posted earlier of Commerical paper vs Treasuries for those unwilling to believe the story that the government’s interest rates are not rising and equilibrium is not being re-established.