- The Lehman Playbook Is Here: Fed Announces Bailout Of Commercial Paper Market – Here’s The Bad News
by Tyler Durden, https://www.zerohedge.com/
It was supposed to be announced late on Sunday (recall “Fed Expected To Announce CP Bailout Facility Within Hours Or Risk Money Market Panic“), but instead Powell hoped that the bazooka of QE/ZIRP/FX swaps would be sufficient to ease the funding panic. It wasn’t, and instead, with a 2-day delay which forced countless companies facing a funding shortage to scramble for liquidity and draw down on their revolver facilities, moments ago the Fed announced that, just as we reported earlier, it will establish a Commercial Paper Funding Facility (CPFF) – the same facility that was unveiled during the last financial crisis – “to support the flow of credit to households and businesses.” As the Fed explains…
Commercial paper markets directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies. By ensuring the smooth functioning of this market, particularly in times of strain, the Federal Reserve is providing credit that will support families, businesses, and jobs across the economy. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase unsecured and asset-backed commercial paper rated A1/P1 (as of March 17, 2020) directly from eligible companies.
And since this is effectively a partial Fed bailout of corporate America, certainly its overnight funding needs, the Fed referred to authority granted to it under Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary, as now that the Lehman playbook is in play, the bailout of Corporate America is suddenly very political.