Tuesday, February 10, 2009

Green Tuesday: the day when the government promised to spend $2.84 TRILLION

This is huge. The Fed announced today that it plans to increase the size of its TALF facility from $200 billion to $1 trillion:
The Federal Reserve Board on Tuesday announced that it is prepared to undertake a substantial expansion of the Term Asset-Backed Securities Loan Facility (TALF). The expansion could increase the size of the TALF to as much as $1 trillion and could broaden the eligible collateral to encompass other types of newly issued AAA-rated asset-backed securities, such as commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities. An expansion of the TALF would be supported by the provision by the Treasury of additional funds from the Troubled Asset Relief Program.
It is part of Geithner's plan:
The main components of the Treasury’s package today are a joint public- and private-sector fund to buy as much as $1 trillion of illiquid assets and a $1 trillion program to supply new credit to consumers and businesses. The administration also will inject additional taxpayer funds into banks, imposing tighter restrictions that will include limits on dividend payments, acquisitions and executive pay.
Rebecca here: This part of the plan (the $1 trillion toward the public-private investment fund) is designed to be financed by both the private and public sector. Therefore, the burden - in theory - will not lie solely with the Treasury. But the wording is very vague, and at this point there is no reason to believe that the program will work anyway. So I just assume $1 trillion, because even if the Treasury is planning to capitalize the fund with the remaining TARP, $350 billion, then there is plenty of excess spending to get us to $1 trillion - off the top of my head I can think of the remaining $400 billion on MBS by Fed.

It is separate from the
stimulus plan:
The Senate approved an economic stimulus bill of some $838 billion on Tuesday, clearing the way for negotiations with the House and increasing the prospects that a final piece of legislation can be on President Obama’s desk within days.
RW: Although the Fed does not specifically say this, but the $1 trillion will be financed purely by "printing money". In one day, the government announced/passed $2.84 trillion of spending, which admittedly will likely be much lower in net, but nevertheless, markets didn't like it.

Probably not so much for the amount of funding, but more so for, let's see, any of the above: Geithner's delivery, Geithner's speech, the lack of details, too many details,...., pick one. I can't help but wonder what would happen if some of these resources were diverted to the economy itself.

You can read the fact sheet for the entire Financial Stability Plan here, and Treasury Secretary Timothy Geithner's remarks here. If you don't want to read that, then read this.

Rebecca Wilder


  1. Are you sure you WANT to read the fact sheet? It just may make you sick since the devil is in the details, if there are any. I cannot believe the amount of money they are throwing around, literally. Outrage just doesn't begin to cover how I feel about any of this. No one has any idea of what will work to help the economy recover.

  2. Every time Geithner opens his mouth, he causes the Geithner Effect -- a crash in one market or another.

    Before being sworn into office, Geithner babbled about China and crashed bonds.

    Giving a speech today, Geithner crashed the NYSE.

    Geithner is a lifetime political appointee suck up who knows nothing about money, capital and investing.

    After all, as the appointed NY Fed Res president, he fiddled while Investment Bank Wall Street crashed themselves and the USA.

    Geithner ought to resign today. President Obama needs to appoint an adult to the role of U.S. Treasury Secretary.

  3. Where is the boundry between nationalizing the banks and nationalizing the banking system's lending agreements and processes thru the FED-TREASURY?

    Aren't we in effect, operating thru the government's control of what it decides should be produced and consumed? I.e., we are either approaching, or have arrived at, a "command economy".

  4. Rebecca,

    The new setup looks great.

    In my opinion Geithner's speech was a real disappointment for the administration as a whole. Either Geithner dropped the ball (and he deserves the blame), or there wasn't a ball to be dropped (shifting the blame to the admin). 24 hours later everyone is on board with his host of "lack of specifics," but to me the fact that they didn't have one detailed measure to announce proves they got a whole lot of work to do. The fact that a housing strategy won't even be announced for another couple of weeks was another huge let down.

    Here's something else to consider: Why would the Treasury pump more cash into the Fed's TALF if the specifics of that initiative haven't even been addressed yet? The market hasn't had a opportunity to even address it -- how do they even know it will work? And already they want to pump more money into it.

    Do you believe the fact that the "bad-bank" strategy was so highly discussed then dropped days before Geithner's address proves at least part of their game plan changed last minute, leaving him with no news to tell?