Federal Reserve and The Treasury Department took major steps to support commercial paper markets. Many investors stayed away from purchasing commercial paper, which was a cause of economic slowdown, but central bank was creating a special facility to help the $1.7 trillion commercial paper market. This includes also credit cards and auto loans to move economy forward.
Market did not respond in positive way just yet, today it was announced how Fed will lay out loans for banks. All bank loans will be available through action with loans available for 28 days or 84 days. Fed also announced that it will provide up to $900 Billion in loans to help banks ease credit crises.
With market going down this start to effect 401K or any other portfolio. Because of the economic downturn, one in five workers 45 and older has stopped putting money into a 401(k), IRA or other retirement savings. And retirement pans have lost as much as $2 trillion in the past 15 months. In most cases this will delay retirement for many people and some of them cannot retire and would have to keep working.
Financial meltdown is starting to create problems everywhere.
According the Fed, consumer borrowing fell an annual rate of 3.7 percent. Consumer borrowing is defined by Fed as all loans not secured by real estate. Economy has shown slowdown in housing market, layoffs and the credit problems as banks have slow down on borrowing due to consumer defaulting on their loans, credit cards and mortgages.
So far steps by Federal Reserve to calm things down did not work. Federal Reserve Chairman Ben Bernanke warned in speech that the financial crises could prolong. Even financial companies such as Bank of America slashed its dividend and reported loss on their third quarter profit of 68 percent.
Many investors, companies are defending their portfolio. Selling everything they have and just sit on cash until market calms down. Even Fed will be forced to slash its Fed Funds rate by at least 0.50 basis points to boost some strength in the market.
Key point currently is to help banks unfreeze their credit lines; allow banks to borrow more money in which banks can create loans. However, even banks are afraid if customers will repay their loans.