The Federal Reserve opened various liquidity facilities to support commercial paper/money markets during the 2007-2009 recession....

The Federal Reserve opened various liquidity facilities to support commercial paper/money markets during the 2007-2009 recession. What was the rationale behind it? Discuss one such liquidity facility and explain how it may have helped to stabilize the credit markets.

Expert Solution

Commercail paper / money market collapse during 2007 recession . Asset based commercial paper was triggered by the crisis in the subprime mortgae market . Federal goverment has taken some intiaves to support these market for that Fed made provision of liquidity directely to borrower & investors in key credit market.

These invention includes commercial paper funding facility. ABCP MMF liquidity facility, Money market investors funding facility & term asset based security loan facility, commercial paper funding facility is to provide liquidity to u.s. issures of commercial paper. under this program fed provide loan for 3 months to specially created limted liability companies, these companies used this fund to purchase commercial paer directely from issuer.money market investors funding facility is designed to provide fund to U.S. money market investors. in this facility a senior secured loan is created to purchase a special purpose vehicle to finance the purchase of eligibe assets from eligible investors.

Term asset backed security loan was created to help market participants meet the credit need of house holds & small businesses by supporting the issuance of asset basd securities collateralized by consumer and small businessses loan: auto loans, student loans, credit card loans,equipment loans, floor plan loans etc.

THe goal was to revive consumer credit securitization market.

jeff jeffy answered 1 year ago

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