The Fed delivered a huge data dump today, revealing information about the boatload of loans it made during and after the financial crisis.
As expected, the data showed that the Fed loaned trillions of dollars to banks and other financial companies during the crisis. (The Fed says it hasn’t lost any money on the loans, and the emergency lending programs are winding down.)
But the data also showed smaller loans to some companies that aren’t usually associated with the workings of the Fed; companies like McDonald’s, Harley Davidson, Verizon and Toyota.
These companies used an emergency program the Fed set up to keep a key financial market going in the teeth of the crisis – commercial paper.
The commercial paper market is basically like a credit card for giant companies in every major industry; it’s something they use every day to borrow money that they plan to pay back very soon.
During the crisis, when people were afraid that Wall Street would collapse, the commercial paper market basically shut down.
In a conversation with Alex Blumberg and Adam Davidson, Peterson described the normal workings of the commercial paper market:
It’s been a relatively boring business. Your commercial paper desks, in many companies, it could be somebody down at almost a clerical level calling every single day to Merrill Lynch and saying, “I need to borrow 50 million. At what rate can I borrow at?” Post that rate and let’s get it done by eleven o’clock in the morning. The Merrill Lynch sales people go off and sell the commercial paper to money market funds and trust departments and investors all across the world. They confirm that the money has been funded into the clerk’s account, and then the clerk turns it over to the treasurer and says, “Your 50 million is here.” By eleven o’clock in the morning.
And here, according to Peterson, is what it felt like when that huge, boring market suddenly froze up:
Ah, I don’t know, for those of you who have experienced an earthquake? You know some people say it’s a soul wrenching experience. Because you realize there’s a power out there that’s doing something that you have no control over whatsoever. And it’s massively moving everything. And that’s last week. Last week there was a monster that was unleashed.
(For more on Peterson and commercial paper, see the This American Life episode, “Another Frightening Show About the Economy.”)
Today’s Fed data dump was mandated by Dodd-Frank, the big finance bill Congress passed earlier this year. For more, see coverage from the NYT (which includes a description of the commercial paper program) and the WSJ, which details borrowing by banks.
The Fed’s commercial paper program shut down earlier this year, by the way.