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Just in case you feel happy after yesterday's stock market surge

October 14, 2008

Remember what Cassandra Tyler Cowen had to say on October 6?

How to tell if things are going very badly

If the Fed ends up guaranteeing commercial paper and/or interbank loans. Too many people are listening to Polonius.

Wall Street Journal, October 7:

Fed to Purchase Commercial Paper In New Facility Backed by Treasury

Wall Street Journal, Today:

Among the other key components of the plan is the FDIC temporarily guarantee, for a fee, certain types of new debt called senior unsecured debt issued by banks and thrifts. This would apply to debt issued by June 30 with maturities up to three years. One problem plaguing credit markets has been a fear among financial institutions that it is unsafe to lend to each other even for periods of a few days. U.S. officials hope this guarantee removes that fear, which could bring down short-term lending rates, such as the London interbank offered rate, or Libor, a benchmark for consumer and business loans.

My stomach hurts. (Update, 8:30 a.m.: it seems to make the stock market happy, though.)

Details of the new plan:

Preferred stock purchase program fact sheet
Preferred Stock term sheet
Exec Comp limits
Fed/Treasury Joint Statement
Paulson Summary

Later: Lots more at Economist's View (via Arnold Kling)

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