liquidity to the financial system. these actions, together with similar measures in many other countries, appeared to stabilize the situation and to improve investor confidence in financial firms. notably, spreads on credit default swaps for large u. s. banking organizations, which had widened substantially over the previous few weeks, declined sharply on the day of the joint announcement. going forward, the ability of the treasury to use the tarp to inject capital into financial institutions and to take other steps to stabilize the financial system – including any actions that might be needed to prevent the disorderly failure of a systemically important financial institution – will be critical for restoring confidence and promoting the return of credit markets to more normal functioning. as i noted earlier, the federal reserve has taken a range of policy actions to provide liquidity to the financial system and thus promote the extension of credit to households and u. s. department of the treasury, emergency economic stabilization act website. businesses. our recent actions have focused on the market for commercial paper, which is an important source of short - term financing for many financial and nonfinancial firms. normally, money market mutual funds are major lenders in the commercial paper markets. however, in mid - september, a large fund suffered losses and heavy redemptions, causing it to suspend further redemptions and then close. in the next few weeks, investors withdrew almost $ 500 billion from prime money market funds. the funds, concerned about their ability to meet further redemptions, began to reduce their purchases of commercial paper and limit the maturity of such paper to only overnight or other very short maturities. as a result, interest rate spreads paid by issuers on longer - maturity commercial paper widened significantly, and issuers were exposed to the costs and risks of having to roll over increasingly large amounts of paper each day. the federal reserve has developed three programs to address these problems. the first allows money market mutual funds to sell asset - backed commercial paper to banking organizations, which are then permitted to borrow against the paper on a non - recourse basis from the federal reserve bank of boston. usage of that facility peaked at around $ 150 billion. the facility contributed importantly to the ability of money funds to meet redemption pressures when they were most intense and remains available as a backstop should such pressures reemerge. the second program involves the funding of a special - purpose vehicle that purchases highly rated commercial paper issued by financial and nonfinancial businesses at a term of three months. this facility

finance by capital controls, transaction taxes, or other market inhibiting initiatives? why not return to the less hectic and seemingly less threatening markets of, say, the 1950s? endeavoring to thwart technological advance and new knowledge and innovation through the erection of barriers to the spread of knowledge would, as history amply demonstrates, have large, often adverse, unintended consequences. suppressed markets in one location would be rapidly displaced by others outside the reach of government controls and taxes. of greater importance, risk taking, so indispensable to the creation of wealth, would undoubtedly be curbed, to the detriment of rising living standards. we cannot turn back the clock on technology - - and we should not try to do so. rather, we should recognize that, if it is technology that has imparted the current stress to markets, technology can be employed to contain it. enhancements to financial institutions ’ internal risk - management systems arguably constitute the most effective countermeasure to the increased potential instability of the global financial system. improving the efficiency of the world ’ s payment systems is clearly another. the availability of new technology and new derivative financial instruments clearly has facilitated new, more rigorous approaches to the conceptualization, measurement, and management of risk for such systems. there are, however, limitations to the statistical models used in such systems owing to the necessity of overly simplifying assumptions. hence, human judgements, based on analytically looser but far more realistic evaluations of what the future may hold, are of critical importance in risk management. although a sophisticated understanding of statistical modeling techniques is important to risk management, an intimate knowledge of the markets in which an institution trades and of the customers it serves is turning out to be far more important. in these and other ways, we must assure that our rapidly changing global financial system retains the capacity to contain market shocks. this is a never - ending process that requires never - ending vigilance.