Page 388 - untitled

CRISIS AND PANIC 

Cost of Short-Term Borrowing
During the crisis, the cost of borrowing for lower-rated nonfinancial firms spiked.
IN PERCENT, DAILY
7%
6
5
4

3
2
1
0
2007 2008 2009

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+ , - . +

Figure .

cash and assets every day and upon which consumers rely—for example, to use their
credit cards and debit cards. “At that point, you don’t need to map out which particu-
lar mechanism—it’s not relevant anymore—it’s become systemic and endemic and it
needs to be stopped,” Palumbo said. 
The government responded with two new lending programs on Friday, Septem-
ber . Treasury would guarantee the  net asset value of eligible money market

funds, for a fee paid by the funds. And the Fed would provide loans to banks to pur-

chase high-quality-asset-backed commercial paper from money market funds. In
its first two weeks, this program loaned banks  billion, although usage declined
over the ensuing months. The two programs immediately slowed the run on money
market funds.
With the financial sector in disarray, the SEC imposed a temporary ban on short-
selling on the stocks of about  banks, insurance companies, and securities firms.
This action, taken on September , followed an earlier temporary ban put in place
over the summer on naked short-selling—that is, shorting a stock without arranging
to deliver it to the buyer—of  financial stocks in order to protect them from “un-
lawful manipulation.”
Meanwhile, Treasury Secretary Henry Paulson and other senior officials had de-
cided they needed a more systematic approach to dealing with troubled firms and
troubled markets. Paulson started seeking authority from Congress for TARP. “One