Fed to Buy Commerical Paper: Wasn’t this what the bailout was supposed to fix?

by Ian Welsh [courtesy of Firedoglake]

Clap!

The cupidity and stupidity, it burns. Seems that the commercial paper market is still barely operating, and that means that a lot of companies are in danger of running out of money for things like, oh, payrolls. This is precisely what Paulson used to stampede Congress into passing the bailout bill. This is, in other words, what the bailout had to be passed fast, fast, fast to fix.

But it didn't work. Even if it might work, Paulson wants to take weeks to set it up before it starts buying. So yes, the bailout is already a failure. It has not fixed what it was supposed to fix.

Which is why the Fed is talking about buying commercial paper. The market is about 1.6 trillion in size. Don't know how much of that they're thinking of buying but this is getting surreal, and it will probably be much more than the 700 billion TARP.

Anyone else notice that the Fed just keeps doing these things without bothering for things like Congressional approval? Things that it doesn't actually have the legal right to do? (The Fed isn't supposed to lend money if there's a possibility of losing money) Paulson may have tried a huge money and power grab, but he at least went to Congress for it.

Is it a good idea? Not really. But it's a less stupid idea than the bailout. Most of the paper will pay back, there isn't a huge amount of risk in it (though some is backed by mortgages and other assets, or by companies which are shaky, so there isn't no risk) and it is short term. It's probably necessary at this point, since TARP will do nothing to solve any of the fundamental financial or economic problems and people know it. A plan that had, oh, put a floor under housing prices say, or which had given the FDIC authority to take over banks that aren't lending (if you aren't lending you must be insolvent, right?) might have worked. Paulson's "bailout" - up a small percentage of trillions of dollars of trash on companies books won't.

This means even more treasuries will have to be issued. I'm losing track here of just how much Bernanke and Paulson between them are burdening the taxpayer with, but as a very rough estimate, it was about 1.9 trillion more in the last two weeks, and that's before this facility. Assume it's half of the size of the market, say 800 billion. Up to 2.7 trillion. That's, um, real money and it's all being used not to fix the fundamental problems of the economy, but as what amounts to a blood transfusion. "As long as we keep flooding blood through this guy missing a leg, he stays alive!"

If these are the adults, can we please have some children in charge?