November 25, 2008, 8:21 am
Fed Announcements on Household Credit, GSEs
TALF Announcement
For release at 8:15 a.m. EST
The Federal Reserve Board on Tuesday announced the creation of the Term Asset-Backed Securities Loan Facility (TALF), a facility that will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA).
Under the TALF, the Federal Reserve Bank of New York (FRBNY) will lend up to $200 billion on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. The FRBNY will lend an amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS. The U.S. Treasury Department-under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008-will provide $20 billion of credit protection to the FRBNY in connection with the TALF. The attached terms and conditions document describes the basic terms and operational details of the facility. The terms and conditions are subject to change based on discussions with market participants in the coming weeks.
New issuance of ABS declined precipitously in September and came to a halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS soared to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and SBA-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads.
TALF Terms and conditions (72 KB PDF)
GSE Announcement
The Federal Reserve announced on Tuesday that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)-Fannie Mae, Freddie Mac, and the Federal Home Loan Banks-and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late. This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.
Purchases of up to $100 billion in GSE direct obligations under the program will be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions and will begin next week. Purchases of up to $500 billion in MBS will be conducted by asset managers selected via a competitive process with a goal of beginning these purchases before year-end. Purchases of both direct obligations and MBS are expected to take place over several quarters. Further information regarding the operational details of this program will be provided after consultation with market participants.
The fifth shoe drops. Now credit card, student loan and auto debt plus SBA loans. Just makes you want to be a debtor, doesn’t it?
Fed Announcements on Household Credit, GSEs [The Wall Street Journal]
Oh, Hank changed his mind again with what to do? No way, he’s always so consistent.
Is it me or is the Fed deciding during potty breaks, #2, what to do next……
GOP = Socialist Whores
“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.”
Houses are STILL historically overpriced in most markets. And yet they want to bring back the bubble. Fucktards.
It’s a TARP!!!
-Admiral Ackbar
another $800bn worth bank gifts are coming this christmass.
is all this legal? the tarp was voted by the congress, then the money was used for something else, now the fed discretionally decides to appropriate bigger amount for the initial purpose of the tarp.
Hey why not just declare a “jubilee” and cancel EVERYONE’s debts? AND then buy everyone a pony, and some lollipops, too.
@4 – Agreed.
@5 – hah.
Help me out gang, “equal to the market value of the ABS less a haircut” …how does this help stuck investors? (I’m assuming that this program is supposed to help stuck investors, but maybe I’m missing something)
Paying below market isn’t going to reverse falling asset prices or help an investor who’s underwater on otherwise good student loan or credit card paper.
“extraordinary conditions do not create or enlarge constitutional powers.”
-Chief Justice Charles Hughes, Majority Opinion, Schechter Poultry Corp. v. United States, 1935
@ NAS
Totally agreed. This is getting absolutely ridunukulous
They could be more creative:
Market Improvement Loan Facility (MILF)
National Emergency Relief Facility (NERF)
Generally Obtuse Loan Facility (GOLF)
Bad Asset Relief Facility (BARF)
I’m a somalian pirate manager…what’s a lending facility?
skeet skeet skeet
I’m a somalian pirate manager…what’s a lending facility?
Are we really suprised, Paulson was a former Wall Streeter, tell one story , color the information and then end up doing exactly what you said you would have done, but until you had to………..
thanks government,
Tomorrow, I will be driving to a mall on my Hummer I will lease from Fed and buy more Chinese made stuff on my Fed credit card.
With the rest of money I borrow, I will go and buy bank shares.
After I become rich, I will make a video titled “Making Money Fast” and sell it through infomercials. That will be my contribution to society.
-American Customer
So much for deleveraging, sigh…
The only solution is Project Mayhem – who’s in it with me – send me dets and we’ll convene a special meeting shortly
It’s all legal. TARP allowed for purchases of pretty much any financial instrument of a financial institution (warrants/common/preferred shares included). TARP does not allow for purchases from non-finanical institutions, thus the Big 3 dilemma.
The FED has broad powers that allow them to act without Congressional authorization in a variety of situations. Thus the majority of the bailout money coming from them. Actually this latest move could have been completely TARP funded because it involves loans to banks, but they decided to structure it differently, presumably to preserve TARP funds for the eventual citi-like bailouts of MS/GS/BoA/etc.
I also wouldn’t rule out the political ramifications of using up the TARP too quickly. Once that initial $350B is gone the Treasury has to get Congressional approval for the next $350B. They don’t want to do that until there’s some kind of perception of success attributable to TARP funds already doled out.
I don’t get why peoples are up in arms. This will help the housing market. It’s a necessary condition for recovery. This type of incentive in the next logical step before the govt puts a gun to the banks’ heads and forces them to start lending.
The unintended consequence though may be a wave of refinancings. The upshot is that lenders can reevaluate credit quality. But the bad news is that all the good mortgages are going to be prepaid, moved out of existing securitized products and repackaged. This is going to make all the existing, questionable RMBS worth even less.
@19,
(flashback to 2002)
Thanks government,
For the easy credit. Tomorrow, I will take my existing cash, lever it up by 20x to 40x and make casino-bet trades on every asset in sight.
-Typical Hedge Fund Manager / IB prop desk.
TARP is so yesterday. now it’s about TLGP (Temporary Liquidity Guarantee Program).
Leverage? We don’t need no stinkin’ leverage…
Housing prices continue to fall because they are still not affordable enough, on balance. It is pointless (counterproductive) to try and prop them up through Govt action. We just need to take our medicine.
This doesn’t help directly the consumer. Therefore if the consumer continues to be strapped with debt burden, or lack of income, or cash, those investors who buy these securities are just speculators. This is an “aid to the ABS speculator facility.” We really don’t need that. It’s not going to work.
Look – fresh from the oven:
FDIC Graphs Show the Extent of Financial Crisis: More Institutions Report Declining Earnings, Quarterly Losses; Lower Asset Values Add to the Downward Pressure on Earnings; Growth in Reported Noncurrent Loans Remains High; Nine Failures in Third Quarter Include Washington Mutual Bank; Failure-Related Restructuring Contributes to a Decline in Reported Capital.
http://yourmortgageoryourlife.wordpress.com/2008/11/25/fdic-graphs-show-the-extent-of-fiancial-crisis/
No Thanksgiving in there.
Respect my facili-tie!!
Everyone repeat after me: De-Lev-er-age(ing).
I find it fascinating that so many seemingly informed/intelligent people (althoguh in hindsight I immediately rescind that statement) are missing the bigger picture, that $1 of “real” money has been multiplied several times, which itself created products, services, and jobs which with the deleveraging thats happening (and needs to be ALLOWED to happen), will cease to exist until replaced with legitimate “real” economic growth.
Sigh…
I should have prefaced the above post with something along the lines of “not to sound the tin-foil-esque panic alarm, but…”
jeebus my head hurts, the idiots, they are a taking over, and it seems resistance is futile