Consumers will soon get relief from the current credit crunch in the guise of a $200 billion consumer credit program being launched by the Federal Reserve. Financial institutions borrowing the money will in turn lend it to consumers to jump start spending in the education, auto and credit cards sectors.
The unprecedented program, called Term Asset-Backed Securities Loan Facility, or TALF, has the lending potential of $1 trillion. TALFs efforts are specifically aimed at targeting small businesses and consumer households by providing available funds to owners of high-rated asset-backed securities to prompt them to open up lines of credit. The companies and investors who own securities backed by credit-card receivables and loans for consumers, autos, small-businesses and students can use them as collateral to obtain the loan money from the government, thus reducing the credit risk for tax-payers.
Those businesses and companies interested in joining the program must submit their requests for the new government loans by March 17. Once they are approved, on March 25, the Federal Reserve will provide the participants with three-year loans. If the plan succeeds, the economy should see relief by the second and third quarters of this year.
The credit market froze up in October of 2008, and since then banks have become unwilling to loan money, even those financial institutions who received billions of dollars in previous Federal loan money. Since lenders ceased their normal operations, even those with outstanding credit histories are finding it increasingly difficult to borrow money at this time.
The TALF program is designed for a long term goal of profitability and immediate stability, with revenue streams being generated by the interest and fees that will be produced by the loans.
Do you think banks will start lending now that more liquidity has been provided into the market, or do you think it is another waste of tax payer money?