This morning's papers are highlighting the IRS' decision to permit corporations to repatriate cash from foreign subsidiaries and the purchase of commercial paper by the Federal Reserve as remedies to the current commercial paper market meltdown.

On the former, I would offer that this is a positive, particularly as most corporate liquidity is at subsidiary levels and, outside of financial borrowers like GECC, most commercial paper borrowings are at the parent holding company. The IRS change helps get liquidity to the right place.

At the same time, however, I would offer that the end result is likely to be lower growth rates outside of the US and, particularly for emerging market economies, the net result is clearly negative.

On the latter, I would offer that this is a net negative and represents yet another focus, by the regulators, on the effect and not the cause of the problem. Clearly the Fed is trying to use its balance sheet, rather than bank balance sheets, to solve the problem. (For background, when corporations can't rollover maturing commercial paper and don't have liquidity on hand, they borrow from banks under standby credit lines.)

The Fed is clearly trying to forestall this, as commercial banks have neither the liquidity nor the capital to move another $1.0+ trillion of maturing commercial paper onto their balance sheets in the form of loans.

To me a much better solution on the part of the Fed/Treasury would be to take the $700 billion approved under the bailout bill and put it into the banks as equity. Now, assuming half of the amount is used to writedown toxic assets, the remaining amount could support $3.5 trillion in potential credit capacity.

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