The Real
Issues: Economics
Throw in the Kitchen Sink!!
By Michael Mohr, Nov. 26th, 2008
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On the front page of today's Money & Investing section of the
Wall Street Journal, the front-and-center article outlined all the new
plans the Federal Government is putting in place to boost consumer
loans and help keep yields low. The article was titled "Fear
Recedes in the Debt Markets," and it is quite clear why. The Federal
Government has decided it can't decide what new tool to implement out
of all the various options considered in the last few months, so they
have decided to use them all! I would hope fears have receded because
the whole financial market has been effectively backed by a boat load
of government guarantees.
Here is a list of each program proposed to be implemented thus far
(that I know of). Some are old favorites, but the Fed has some nice new
ones:
Directly under the Treasury
Troubled Assets Relief Program (TARP) - this program has changed over
the last couple of weeks. First introduced as a tool to purchase toxic
assets off the balance sheets of financial institutions, Secretary
Paulson indicated 2 weeks ago that it will instead be making direct
equity contributions. He has also indicated that he will reserve nearly
$400 billion for the use of the next administration.
Directly under the Federal Reserve
Term Asset-Backed Securities Loan Facility (TALF). This facility will
lend as much as $200 billion to holders of certain high-grade
securities backed by assets such as student loans, credit-card loans,
auto loans and small-business loans. Only $20 million of this $200
Billion will be backed by TARP.
Direct purchase of $500 billion of mortgage bonds guaranteed by Fannie
Mae, Freddie Mac and Ginnie Mae.
Direct purchase of $100 billion of Fannie, Freddie, Ginnie and the
Federal Home Loan Bank debt securities through a reverse auction
starting next week. Apparently Secretary Paulson didn't see
this fitting into TARP, but someone thought it was still necessary. I am
assuming this will allow toxic debt to come off of balance sheets and be
held by the Fed.
Directly under the FDIC
FDIC insurance on Financial Notes. This is a boost to the bond markets.
The FDIC backed the first issuance of financial corporate bonds Tuesday
when Goldman Sachs issued $5 Billion of three year notes. The
Government backing nearly halved the yield on the notes to about 3.25%.
Looking over the list I see everything. I have not heard of any other
finance industry-related rescue plan since this crisis began. It seems
as though the Federal Government couldn't decide what would work so
they swooped in and backed everything. We will never be able to know if
this was all necessary. I would never want to be in Secretary Paulson's
place now, so I will only assume he is making the best choices he can
given the information. I just hope this is enough to stem market fears
in the long term and induce private investors back into the market
because this is it. The government is out of ideas.
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