TARP II: The Wrath of TALF
In normal times the Federal Reserve responds to crises by using teeny, gold-plated hydraulic levers to raise and lower interest rates. As you may have noticed, a) they already did that, twice, in October, and b) it's still not 'normal times,' unless you've been cryogenically frozen since the 1930s.
What's a central bank to do now? Well, hell, why not just print up more money, wrap it in cute acronyms and throw it out there…
The central bank announced what it called a term asset-backed securities loan facility, a plan under which it will lend up to $200 billion to support the issuance of debt backed by consumer and small-business debt — such as credit-card loans, student debt, auto loans and loans backed by the Small Business Administration.
Because this term asset-backed securities loan facility is crashing into your garage, where it will play wacky pranks and eat your cats, the Fed has dubbed it TALF. Not to be confused with TARP — that was the first one, the famous $700 billion troubled asset relief program that John McCain financed with the sale of his five largest homes. TARP is seeding TALF with about $20 billion (one of John McCain's sheds).
And let's not forget the poor mortgage giants at the heart of this problem, Fannie, Freddie, Ginnie, Mickey, Minnie, and Goofie…
In addition, the Fed said that it would purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, along with up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae (the government-sponsored enterprises, also known as GSEs).
The only disturbing thing about TALF is that, unlike TARP, I guess Ben Bernanke and Henry Paulson didn't need to check with Congress before announcing it?
How callous. Unemployed Americans are losing their homes, and these guys won't even allow us the joy of our national sport: blaming lawmakers for being in favor of a plan and then against it, or vice versa.
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I find it ironic that big government, big business, and big banks are finding themselves in the same sort of trap that the Payday Loan Industry has been accused of creating. The fact is that only 7% of payday users let their finances spin out of control and get deeper and deeper in debt. It won't be long before the government files bankruptcy.
It's the end of the world as we know it and I feel drunk and stoned on hash.
I thought that part of the problem was that banks were lending mortgage money to people who really couldn't afford the payments (sub prime loans). And in general, people have too much credit card and other debt. So why is making more money available for loans now supposed to make things better? I just don't get it…but then I don't have an econ degree.
Christ I'm getting old. It's from Star Trek II: Electric Boogaloo
What was that?
TALFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFF!
Damn, that was supposed to say:
PS: insert fart joke here
@Mary:
Yup, they guarantee a very large volume of morgages in the US. But they weren't actually that heavily involved in the Alt-A or subprime market. The numbers I can dig up indicate that maybe 5-10% of Freddie and Fannie's portfolios were subprime. ie, not that much at all.
Their real problem was that, as the mortgage market began to collapse, Fannie and Freddie suddenly had to use their own capital to meet their obligations, and the amount of capital they had available became uncomfortably low (partly because their capital requirements were too lax), to the point that a bailout was necessary.
As such, F&F are better described as victims of the subprime/alt-A-fueled housing bubble and subsequent collapse, rather than conspirators.
PS:
Right, right, but Freddie and Fannie guaranteed, what, half the mortages in the U.S.? More than half? And Fannie's risk exposure was a lot higher than anyone let on, as I recall, and they weren't exactly transparent about it… perhaps we can agree they were circling the aorta of this problem?
Also, Brett, you gotta stop being so smart around here. We prefer fart jokes.
Just as a point of correction, Fannie and Freddie are *not* at the "heart of this problem". It was the investment banks, hedge funds, insurance companies, and ratings agencies that went on the subprime binge, and it is they, along with the government and it's obsession with deregulation, that are to blame.
Attempts to blame the crisis on F&F, the CRA, or any number of other things, are simply conservative attempts to blame this crisis on government intervention, so that they can protect their precious faith in unbridled capitalism. But it's BS, and deep down, I think they know it (and some, like Greenspan, are even admitting it).