A Review of Kacperczyk and Schnabl's Article 'When Safe Proved Risky: Commerical Paper during the Financial Crisis of 2007-2009'

668 Words Feb 3rd, 2018 3 Pages
They describe the important role commercial paper played during the financial crisis. The working definition for commercial paper with respect to finances used in this article is as follows:
Financial commercial paper is issued by large financial institutions. In contrast to asset-backed commercial paper, financial commercial paper is issued by the institution directly and not via a conduit. Also, financial commercial paper is unsecured and the issuer does not pledge assets as collateral. Financial commercial paper is considered a low-risk asset because of its short maturity and the fact that its issuers are large institutions with strong balance sheets. (2010, Page 34)
They describe several events in a short timeline where trillions of dollars hung in the balance. The authors additionally write about the role that the Federal Reserve played in the financial crisis as well. Primarily, the Federal Reserve's purchase of commercial paper in 2008 immediately contributed to the stabilization of the market. Early on in the article, the authors state that their objectives for the article are to analyze commercial paper during the crisis. They do this by providing an institutional background of commercial paper, the supply & demand of the market, as well as what they perceive as the most important events during 2007 2009 related to both the financial crisis and…

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