From an article in Tuesday’s Washington Post:
Last night, the Fed was drawing up plans to set up a special fund that would buy short-term commercial paper. The purchases would benefit banks as well as non-financial companies.
The fund would be financed by a loan from the Fed, and any losses would probably be covered by the Treasury using its new $700 billion bailout package. Fed and Treasury lawyers were hammering out details last night.
As much attention as the coming purchase of mortgage-baked securities by the Fed has gotten, direct efforts to stabilize the commercial paper markets might be at least as important.
Of course, this move comes on the heals of the Fed’s action yesterday to expand its direct lending to banks to up to $900 billion.