Shh...

me: what you know about commercial paper?

e: not a whole lot
very similar to cash... or a CD

why?

me: government purchasing commercial paper to aid in "bail out"

e: so here's my understanding of commercial paper

big name companies, usually financial institutions, use it as a short-term borrowing tool
so think of a company like... Lehman Brothers, for example, issuing something like a 3-month CD
the CD is actually commercial paper... and Lehman leverages the money they get for their operations

whoever buys the commercial paper (usually big institutional investors like money market funds since CP's are considered relatively low-risk) are due the principal + interest when the CP matures

just like how a CD operates

me: yah

e: but... if a company like Lehman is unable to make good on the CP when it matures... the value of the CP on the open market suddenly drops significantly

which is what happened with all of these firms being over-leveraged and the on-set of our current credit crisis

and alot of these companies rely so much on short-term borrowing

so essentially, the govt wants to step in and buy up these CP's acting as the short-term lender to these companies

and then there are asset-backed CP's... which are CP's that have a pool of asset-backed securities used as collateral... mtge crisis has rendered the asset-backed securities worthless

meaning that those ABCP's are 'guaranteed' by worthless securities

me: so basically...

banks have no money.

banks going bankrupt.

government = new bank.

e: exactly

me: woot woot

COMMUNISM HERE WE COME!

e: hooray

let's move to Canada