At every turn it seems the Federal Reserve’s plan to revive consumer credit by stimulating securitization is running into trouble. The Term Asset-backed Loan Facility, TALF, is meant to encourage additional liquidity in the credit markets but it has consistently been hampered by technical and broader market issues.
The two latest problems:
- The stimulus bill’s “hire American’s first” provisions may apply to anyone participating in the TALF, greatly complicating compliance. The bill said that firms taking aid from the government would be limited in hiring foreign workers under H1B visas. That restriction may apply to the TALF, which could make firm’s hesitant to participate. (See details in the FT.)
- A larger problem is the lack of demand for the new consumer debt the Fed hopes to encourage. While the assets owned by Americans have declined by 18% in value, their debt has remained as high as it ever was. Many people are hesitant to borrow more against less assets, even if rates and terms are favourable. “The concern about the TALF is not so much the investor interest in it, but the availability of eligible” securities to buy, given lack of consumer demand for new debt, a Goldman Sachs analyst tells Bloomberg.
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