Short Term Credit Easing - Good Time for Money Market Funds?
Posted: Wednesday, December 17, 2008
by Jack Sarkissian
Ameri-Financial
Although the $700 billion US Treasury bailout program gets the headlines, other government initiatives intended to stabilize the economy have already been effective in stimulating tight credit. Two programs - the Federal Reserve's Commercial Paper Funding Facility (CPFF) and the FDIC's Temporary Liquidity Guarantee Program (TLGP) - have attracted money market investors back into the short-term market.
The CPFF provides a purchasing mechanism where the Reserve buys three-month debt notes from highly rated companies and extends below market interest rates. By doing this, businesses can cover their operating costs until the economy stabilizes. It infused the dry market with $11.6 billion in new money by Dec. 3, capping six straight weeks of expansion, according to a recently released Fed report.
In order to create a cheaper lending market, The FDIC launched the TLGP to offer guaranteed backing for financial companies issuing unsecured debt. There are two parts to this program: 1) a guarantee on non-interest bearing transaction accounts (which includes NOW accounts with 0.5 before the program started, then dropped to 2.6% in early December.
Jack Sarkissian is a senior financial analyst at Ameri-Financial. Visit http://www.ameri-financial.com/ for news and updates on personal finance that you cannot afford to miss. Use our free financial analysis tools online to establish your financial goals and reach them faster.
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