Fed plans to profit from loans
Well, it seems the feds are so fed up with the lending world, they’ve decided to take matters into their own hands.
The Federal Reserve and the U.S. Treasury have started a new program through which consumers and businesses can take out loans directly from them.
Know your acronyms
The program is called the Term Asset-Backed Securities Loan Facility, otherwise known as TALF.
Through TALF, people can borrow money based on ABS (asset backed securities). That means they can get business loans or personal loans backed by consumer loans, auto loans, student loans, credit-card receivables or small-business loans.
Not a new idea
This program was first announced in November, but it was delayed. Now, owners of ABS can apply for loans starting March 17. The first TALF loans will be issued March 25.
Making a mint
The program could provide up to $1 trillion in loans for consumers and small businesses. It is designed to make a profit through interest and fees.
The plan is to stimulate the economy without relying on traditional credit channels, which are now blocked up, the government said.
A reluctant industry
Banks are unable or unwilling to lend, and even customers with high credit scores are finding credit hard to obtain.
“Issuance of consumer ABS has remained near zero since October,” the Treasury said, adding that the stress in the market for extending credit to consumers “is one of the causes of the deepening recession.”
Optimistic on economy
Tony Crescenzi, chief bond-market strategist for Miller Tabak & Co., believes the country will quickly see positive results because of the TALF. He believes it will restore confidence in the economy.
“If it works, a swath of economic data will be impacted, probably by the end of the second quarter or early in the third quarter, altering perceptions about the economy and boosting household, business and investor sentiment,” Crescenzi said.
Government is moving into MORE sectors of finance? This is getting out of hand. Granted, I really am not enamored of the financial system of late, but I think that all of this interventionism is going to bite us on the rear before long. If we end up with too much government involvement, we are going to have a government and bank run police state. And that is about as far removed from America as you can get.