Wednesday, April 8, 2009

TALF off to a snail-speed start

Today, the NY Fed released information on the second round of the Term Asset-Backed Securities Loan Facility (TALF) - it's new program designed to jumpstart consumer and small-business lending via the asset markets backed by these loans (ABS). Requests for TALF loans fell 64% to just $1.7 billion since the program's premier on March 17-19.

There were $811 million in requests for funds linked to purchase ABS backed by auto loans and $897 million for those backed by credit card loans, but that's it. There have been requests for neither loans to buy ABS backed by student loans nor ABS backed by small business; and furthermore, the program was extended to include ABS backed by equipment, floorplan, and mortgage servicing advances, which also received no takers.

This is a very slow start. Bloomberg cites the following as hindering the program:
  • TALF investors are subject to a provision in February’s $787 billion fiscal-stimulus law that makes it tougher for recipients of federal bailout funds or Fed emergency loans to hire skilled workers from abroad.
  • John Ryding (founder of RDQ Economics LLC in New York ) said the coming expansion of the TALF to include older, distressed mortgage securities will be more important than the first phase, which only includes newly issued securities tied to consumer and business loans.
  • Weaker consumer demand for credit could also be limiting demand for TALF deals. The pace of borrowing by U.S. consumers fell in February. (this is what I initially argued).
Work visas? Man, Congress may have shot itself in the foot on this one. Overall, it looks like there are problems; technical or not, they're there. Wonder how PPIP will pan out.

Rebecca Wilder


  1. Well, DUH! Of course, consumer borrowing fell - what do they think got us into trouble in the first place? Maybe the "consumer" is catching on to the indebtedness problem at last. I sure am not going out on a buying spree of large ticket items.

  2. Re your first point: I'm a US citizen working under contract to a large company that currently has a "do not hire American" policy for IT staff. And what am I doing mostly? Modifying their products for various government agencies! It is *so* infuriating to have my tax dollars going to this company. Ditto with bailout money. Hurray to Congress for something!

  3. Other things being equal, wouldn't banks continue to "roll over" their paper with the same party, and maybe even they receive discounted terms for their continued business?

    Wouldn't the operational costs be smaller by relying upon the same private counter parties?

    Wouldn't switching back & forth create extra work and cause addtional expenses? What would be the incentive to change?

  4. In the explanation of TALF terms on the New York Fed's site I found that "TALF loans will not be subject to mark-to-market or re-margining requirements". Does it mean that the Fed is accepting collateral at the book value, Not at the current (lower) price? If there is no additional penalty for defaulting on theses "facilities" other than the loss of the overprice collateral doesn't it create insentive to swap bad debt for treasuries and default?


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