How is the Fed Reserve able to lend out $200 billion to ABS holders? It got a bailout from the TARP
Treasury Provides TARP Funds to Federal Reserve
Consumer ABS Lending Facility
Washington– The U.S. Treasury Department today announced it will allocate $20 billion to back a lending facility for the consumer asset backed securities market established by the Federal Reserve Bank of New York.
The asset backed securities market provides liquidity to financial institutions that provide small business loans and consumer lending such as auto loans, student loans, and credit cards. While ABS issuances in these categories were roughly $240 billion in 2007, issuance of consumer ABS declined precipitously in the third quarter of 2008 before essentially coming to a halt in October. Continued disruption in the ABS market could further deteriorate credit availability for consumers and increase the prospects for further deterioration in the economy generally…
We’re still not exactly clear how a $20 billion TARP bailout turns into a $200 billion lending facility. Maybe this is that so-called multiplier effect.
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