Today, the Federal Reserve announced its new $200 billion program to help lending to small businesses and consumers. It’s been given the wonderful name of the Term Asset-Backed Securities Loan Facility, which they’re calling “TALF” because they hate the English language. Basically, the idea behind it is to provide more money for consumer lending by financing bonds built on bundles of consumer loans.
Here’s how it works. Sometime between now and March 17th, you go to the Fed and tell them you want a loan for to buy securitized consumer loans. Well, not you unless you are a Fed regulated financial firm. But you get the point.
On March 25th the Fed will start handing out the loans. People then take those loans and buy up asset backed securities, which is a fancy name for bonds put together by banks out of big collections of auto loans, student loans, credit card loans and small business loans.
The idea is that banks will lend more money out—to small businesses, ease up on consumer credit and auto-finance companies will make more auto loans—if they can then get these loans off their balance sheets by securitizing them and selling them to other investors.
We know what your thinking. Wasn’t this the kind of thing that got us in trouble in the first place? Well, frankly, yes. It was. But the government is committed to the proposition to the problems caused by too much debt is more credit.
Seriously, that’s the idea.
The official policy is that loans to consumers and businesses won’t start flowing from banks until the securitization market unfreezes.
“By reopening these [securitization] markets, the TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy,” the Fed said this morning.
Ain’t it grand, boys?