Hey, the Fed has a new acronym! It’s called the CPFF (commercial paper funding facility) and it’s basically the TARP, only instead of buying toxic mortgage-backed securities, the government is buying commercial paper. The new facility is backstopped by the Treasury, which raises at least one obvious question: if Treasury and the Fed can just come out and do this for CP, why did they need to go through such a nightmarish legislative process before getting the TARP approved?

There’s no doubt that the CP market needs help. TED’s at 369bp right now, which means that there’s still no interbank lending; yes, the banks are probably the riskiest of all the major corporate credits, but worries in the financial sector have definitively spilled over into the rest of the credit markets.

But I’m not convinced that expanding the Fed’s lender-of-last-resort role yet further is necessarily a great idea. A lender of last resort, at least in my conception, is someone who will extend funds to a systemically important financial borrower, quite possibly at punitive rates, when no one else will. What the Fed’s doing here is lending to everyone when no one else will. And even the vast resources of the US government are clearly insufficient to do that.

A line has to be drawn somewhere: we’re never going to see the Fed issuing personal credit cards. I do appreciate that now’s not a great time to be drawing lines. I just wish that the policy response to this crisis was a bit more strategic and coordinated, rather than looking ever more confused, ad hoc, and panicked.

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