Can the Fed Stop a Bank Run?

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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:

* Coordinated interest rate cuts by all major world economies;
* A move by the Federal Reserve to guarantee that it will provide liquidity in the event of any major bank run;
* Increased Fed action to provide short-term liquidity to non-bank actors that lend to corporations;
* A willingness to make short-term loans directly to corporations.

Roubini said that the $700 billion bailout package enacted by Congress last week probably won’t end the crisis of confidence in the financial markets. He notes that the plan does not address the “much more urgent problem” of a “generalized run on the short-term liabilities both of the banks, of the non-bank shadow system, and now of the corporate sector.”

Read the full interview here.

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Truth #1: The chaos is the point.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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