WASHINGTON — The Federal Reserve announced Tuesday a radical plan to buy massive amounts of short-term debts in a dramatic effort to break through a credit clog that is imperiling the U.S. economy.
The Federal Reserve will buy "commercial paper," a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls.
Call me stupid and while its true I am not one to talk about managing money. The way I understand this is. Companies sometimes barrow money short term ie. as little as 24 hours up to weeks at a time to fund their day to day operations. And part of the issue with this credit mess is these options are not out there right now for the companies that run their operations this way. Thus the Fed. is taking steps to try and open those short term credit lines up to these companies again.
I liken this type of loan to what us private sector folk call a "Payday Loan" My boss is not only my boss he is a good friend of mine we were talking about this. We have been in business 5 years he is the sole owner of our company and NEVER once taken out a loan to pay payroll or buy day to day supplies. His response to companies taking out short term loans is "Well they are not managing their cash flow right in the first place!"
Now we did agree that there are just times when some companies depending on the industry they are in need a loan to fund their day to day operations. But as a rule we both think it is crazy that any company of any sizee would have to take out a loan for a term as short as 24 hours.
Most companies already have agreements with their venders that let them buy goods on what is call a "net 30" or "net 15" account ie. Companies have up to 30 or 15 days to pay for items they have bought from venders with out interest. So over that I am not sure what the need for these short term loans is. Who knows maybe its not that simple. But I think the goverment is putting their hands where they don't belong.
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