Overnight interest rates continue to rise, likely to constrain business

Further, Felson reiterated that the U.S. Federal Reserve, other major central banks -- along with the fiscal policies of these governments -- must either find ways to get banks to lend or "they must create new tools and institutions to make sure that corporations and other institutions have adequate overnight and short-term capital."

"The crisis cannot be allowed to prevent companies from conducting typical business or states from paying suppliers, buying equipment or paying employees, or the economy will freeze-up," Felson said.

New tools/techniques that may have to be tried, in Felson's view, include: the U.S. Treasury making emergency loans to states / counties if private financing dries up; additional increases/expansions in the Fed's term auction facilities; allowing corporations to borrow cash from subsidiaries abroad tax-free; and/or direct Fed loans to corporations. Longer term, Felson said, new, regional banks could be established to replace insolvent banks and/or banks that continue to hoard cash and/or refuse to lend.

Monetary Policy / Economic Analysis: The Fed has the authority to extend credit to any company under "unusual and exigent circumstances." The FDIC has the authority to guarantee bank debt, for a temporary period. Further, the U.S. Treasury, as a result of the recently-passed rescue legislation, has broad authority and resources (up to $700 billion, with another Congressional o.k.) to buy assets, invest funds and/or create other vehicles as needed (such as agency to insure assets or mortgages).

All of the above, along with commercial paper guarantees by the Fed, must be used to force overnight interest rates lower and promote the lending that is the lifeblood of commercial activity -- the lifeblood of the economy.

Further, fiscal governments in the world's major economies, led by the U.S. Treasury, must speed their efforts to remove distressed / bad debts from the financial system.