INSTANT VIEW: Fed moves to backstop ailing CP market

NEW YORK (Reuters) - The Federal Reserve on Tuesday announced the creation of a special-purpose facility with the Treasury Department's blessing to begin buying commercial paper in yet another emergency move aimed at calming chaotic financial markets.

KEY POINTS: * The Fed said it was acting because money market mutual funds and other investors have become increasingly reluctant to buy commercial paper, which is widely issued to fund day-to-day business operations. * CPFF to provide backstop to U.S. issuers of commercial paper through "special purpose vehicle" * Vehicle will buy three-month unsecured and asset-backed CP directly from eligible issuers * Treasury to make special deposit at NY Fed to support facility

COMMENTS:

BOB PATTEN, SENIOR BANK ANALYST, MORGAN KEEGAN, NEW YORK:

"It's all about unfreezing credit markets. We've got to instill liquidity in the system. The commercial paper market is critical for financials and Fortune 500 companies. This is a critical step"

"The market is desperate to get some confidence back.

"There is no one thing that is going to fix the issues in the credit market. This is going to take a series of steps in an accelerated time frame to address.

"Credit needs to be put into the hands of the borrowers. Right now banks are hoarding liquidity en masse. Steps are being taken. All (these) steps are in the right direction.

"We're still in a recession, but if you get the credit markets open then we just focus on a slowing economy. That's manageable."

PETER SORRENTINO, PORTFOLIO MANAGER, HUNTINGTON ASSET ADVISORS, CINCINNATI, OHIO:

"The low risk thing is to let cash pile up, because right now cash is king. The Fed at this time has to use moral persuasion to say, 'Go out there and make loans.'"

"They have a huge bully pulpit and they can literally mandate, go out and make loans."

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK:

"Once again the Fed continues to pull all the levers it can think of and it's thought of a new one in the form of effectively accepting unsecured paper -- commercial paper -- from a wide variety of institutions. Up until today, the Fed did not make loans without some form of collateral. That has now gone out the window."

ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE CORP., BOSTON:

"Every little bit probably helps, but collectively people need to sit back and take a deep breath, and decide if all these different techniques and maneuvers are enough. I got to believe they will be ultimately, but I guess I don't understand why it takes so long... The rest of the G7, I'm putting more blame on them for not working more closely with the Fed.