Can the Fed Stop a Bank Run?
The Fed Reserve, in a desperate action this morning to stop a bank run and preserve commercial liquidity, is pouring money into short term markets. As the AP reported an hour ago:
The US Federal Reserve opened up its coffers Tuesday to companies hit by the credit crunch with a new program that will buy up commercial paper, short-term debt critical for many corporate operations.
The latest effort in an all-out war against the credit crunch creates a new "liquidity backstop" for corporate finance and was established after the US Treasury determined it was "necessary to prevent substantial disruptions to the financial markets and the economy," the central bank said.
"Substantial disruptions to the economy" is a nice way of saying that without access to commercial paper, commerce in the the United States would grind to a halt.
Two days ago, Nouriel Roubini, the respected NYU economics professor, market expert, and editor of the RGE Monitor, had already made these urgent recommendations to stop a liquidity run. In an October 5 interview with the Council on Foreign Relations, Roubini advised the following moves: