Central Bank Would Buy Companies' Unsecured Debt

New York Times (10/07/08) P. A1; Andrews, Edmund L.; Grynbaum, Michael M.
Under a radical plan being discussed with the Treasury Department, the Federal Reserve would purchase large amounts of the unsecured commercial paper issued by banks, businesses and municipalities that companies depend on to finance their daily operations. Although the move would put more taxpayer funds at risk, some Fed officials believe taking such an aggressive stance as lending continues to evaporate is a necessary plan of attack. Still, purchasing commercial paper could open the central bank to conflicts of interest--mainly because it would be juggling the goals of protecting its investment portfolio with its traditional objectives of promoting low unemployment and stable prices. Former top Fed official Vincent Reinhart remarks, "The Federal Reserve really would become the buyer of last resort, trying to jump-start the commercial paper market by taking on credit risk."