14 October, 2008

The pressurized credit markets observe a just a few clues of easing after the Federal Reserve reduced the target fed finances rate by a half-point to 1.5 percent. The Fed also condensed its urgency lending rate to banks by half a percentage point to 1.75 percent, and increased the limit that primary-dealer banks can use in securities from the Fed to $5 billion from $4 billion. The Treasury Department, meanwhile, stated that it will enhance the amount of Treasury securities being sold to the public. It is possible that the government's hard work will seize more time to work their way through the troubled monetary system before lending significantly shaken off again.

According to Robert Dye, senior economist for PNC Financial Services Group, "These credit market situations did not turn out overnight, and it is not going to be resolved in one night, either." However, this critical situation can be solved by borrowing finances through unsecured loans. These loans provide financial backing to cope with the pressure of troubled financial system.

"If banks could find an appropriate means of improving capital, they'd begin to shaken up on credit. But if you do not know about your capability to increase the capital, you cannot afford to make a bad loan. The capital issue has to be solved first" revealed by Kevin Giddis, managing director of fixed income at Morgan Keegan.

Giddis added that the rates for 30-day commercial paper, for example, dropped by about 0.20 to 0.40 percentage points after the declaration of the Fed that it would begin purchasing top-tier commercial paper.

Commercial paper can be instant loans that used by the companies to fulfill their immediate cash needs, such as maintaining inventories and payroll. The biggest buyers have tended to be money market funds but those funds have recently been collecting to Treasury's instead, as they are under pressure about worsening of companies, as Lehman Brothers Holdings Inc. did.