It appears that efforts by the central bank to encourage investors to purchase corporate debt are not having much success (see CNN Money article). While it is often the case that companies are hesitant in the fourth quarter of a fiscal year to purchase debt for fear of creating problems on their balance sheets, this year the policy decisions of the Fed also appear to be having an impact. Currently, the Fed is offering a much lower borrowing rate than the market, with rates as low as 1.55 percent for three-month paper. The market is offering closer to 2.6 percent for similar debt. Until the market rates are lower, or the Fed rates become higher, it is not likely that investors will take the extra risk of buying corporate debt.

In a seemingly unrelated story, automakers are apparently unhappy with the $25 billion in loans they are set to receive for making more fuel efficient cars, with paperwork and administrative hurdles delaying the money (see Reuters article). As a result, the industry is continuing to burn through cash at a faster pace, causing GM to warn that the industry is now "near collapse," requiring further assistance. New aid is now being demanded, possibly up to another $25 billion in loans. The difference is that now these loans would come with no strings attached, with the expectation is that the companies would use the money to pay retiree health care obligations.

As the current financial crisis continues to unfold, one can expect that similar market circumstances (interest in cheaper Fed debt) and stimulus requests (taxpayers covering operating costs) will continue. At some point the response to such request will have to be no, and the results of such decision will have to be felt. Unfortunately, the longer that requests are accepted and government intervention occurs, that longer it will take to separate business from government and allow the free markets to get back to doing what they do best - rewarding with cheaper capital those companies that are managed well and properly positioned, while punishing those that aren't.