that trade in u. s. government securities with the federal reserve bank of new york. on money market mutual funds was severely constricting their purchases of commercial paper, an important source of credit to many businesses, we supported the funds, their customers, and their borrowers by making credit available that allowed funds to meet heavy redemption requests and also provided credit directly to borrowers in the commercial paper market. our objectives in these programs are consistent with central banks'classic function as lenders of last resort. we are encouraging the continued provision of private - sector funding to intermediaries by assuring their creditors that sound intermediaries have a sure source of liquidity to repay debts. when, despite this encouragement, private lenders have such a strong preference for safety and liquidity that credit is not forthcoming, we lend, often at a penalty rate relative to normally functioning markets ; that lending is intended to prevent disorderly and disruptive failures and fire sales of illiquid assets, which would drive asset prices lower, intensify the disruption of credit flows, and deepen the pullback in spending. most recently, in collaboration with the treasury, we have begun supplying liquidity to purchasers of securitized credit. under this program, private investors absorb credit risk up to a certain level, and the treasury takes on the bulk of the credit risk above that level. the federal reserve's residual credit risk is designed to be quite small. the asset - backed securities market that this program supports had become a key vehicle over the past couple of decades for financing credit extended to households and businesses, but its functioning deteriorated rapidly over the second half of last year, with issuance tailing off almost completely. the availability of credit from the federal reserve and the insurance against severe downside risks from the treasury should buoy demand for securitized debt and thus help bolster the flow of credit to households and businesses. a shortage of funding has not been the only factor impeding the extension of credit. lenders have been concerned about counterparty risk and about conserving their own capital against unforeseeable events. we can't deal with those concerns through our lending because we do not take appreciable credit risk. but confidence about access to funding has been a part of the problem, as reflected in the evaporation of trading in term maturities in a wide range of wholesale funding markets and the elevated spreads paid by even very safe borrowers. the limited availability

overall, one result of the more - rapid pace of information technology innovation has been a visible acceleration of the process of “ creative destruction ”, a shifting of capital from failing technologies into those technologies at the cutting edge. the process of capital reallocation across the economy has been assisted by a significant unbundling of risks in capital markets made possible by the development of innovative financial products, many of which themselves owe their viability to advances in information technology. there are few, if any, indications in the marketplace that the reallocation process, pushed forward by financial markets, is slowing. while growth in companies ’ projected earnings has been revised up almost continuously across many sectors of the economy in recent years, the gap in expected profit growth between technology firms and others has persistently widened. as a result, security analysts ’ projected five - year growth of earnings for technology companies now stands nearly double that for the remaining s & p 500 firms. to the extent that there is an element of prescience in these expectations, it would reinforce the notion that technology synergies are still expanding and that expectations of productivity growth are still rising. there are many who argue, of course, that it is not prescience but wishful thinking. history will judge. * * * before this revolution in information availability, most 20th - century business decision - making had been hampered by pervasive uncertainty. owing to the paucity of timely knowledge of customers ’ needs and of the location of inventories and materials flowing throughout complex production systems, businesses required substantial programmed redundancies to function effectively. doubling up on materials and people was essential as backup to the inevitable misjudgments of the real - time state of play in a company. decisions were made from information that was hours, days, or even weeks old. accordingly, production planning required costly inventory safety stocks and backup teams of people to respond to the unanticipated and the misjudged. clearly, the remarkable surge in the availability of more timely information in recent years has enabled business management to remove large swaths of inventory safety stocks and worker redundancies. that means fewer goods and worker hours are absorbed by activities that, while perceived as necessary insurance to sustain valued output, in the end produce nothing of value. these developments emphasize the essence of information technology - the expansion of knowledge and its obverse, the reduction of uncertainty. as a consequence, risk premiums that were associated with many forms of business activities have declined.