Commercial Paper's Flow Gives Us Hope

With commercial paper flowing (check must-read Tony Crescenzi), you can see how we might be able to get some liquidity into the system. Fortunately, the shutdown didn't last long enough to kill manufacturing. The speed with which the Fed dealt with this is most impressive, and it is important for putting in an overall bottom.

Next stop: mortgages. The FDIC housing program would address the underlying collateralized debt obligation market by simply making the waterfall in the CDO work again. If borrowers were simply to be able to pay their mortgages, no matter how stretched out, we could put a floor on these complex instruments and make them liquid again.

This is very important for the hedge funds and for the pension funds and banks that bought this garbage. I am bummed that the Treasury's TARP program is not right now bidding for the whole loans on Wells Fargo's (WFC - commentary - Cramer's Take) and JPMorgan Chase's (JPM - commentary - Cramer's Take) balance sheets, because without that stuff coming off, they will have overpaid for Wachovia and Washington Mutual with potentially disastrous consequences. Same with Bank of America (BAC - commentary - Cramer's Take)/Countrywide (CFC - commentary - Cramer's Take)/Merrill Lynch (MER - commentary - Cramer's Take).

When you are on conference calls, you will hear that company after company drew down the letters of credit that banks were begging them to take not that long ago. (I think that's why you see a big spike in lending when you look at the Federal Reserve Bank of St. Louis' borrowings number.) Those loans were about commercial paper freezing. It is one of the reasons why I believe we are wrong to criticize the banks not lending. They were lending, and companies have suddenly taken them up on it. An increase in commercial paper will make them feel better about the lending they just did.

Every one of these matters. They make it less likely that a catastrophe can derail us to Dow 5000 and the like.

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