Commercial Paper Explained

The speaker discusses the decision by the federal reserve to support the 1.6 trillion commercial paper market by purchasing paper and unfreezing the flow of liquidity which resulted due to the lack of investors willing to take risk during the credit crisis.

He discusses the purpose of commercial paper and explains how it is used for short term financing by corporations for items like accounts receivable, payroll, and supplies.  These securities typically have a term from 1 day to a couple weeks and allow corporations to access short term money at much lower rates than they could receive at a bank.