$200 Billion TALF to Consumer Credit
The New York Fed launched yesterday a program to lend up to $200 billion to owners of high-rated asset-backed securities, such as those backed by consumer loans, auto loans, student loans, credit-card receivables or small-business loans. Investors or companies holding these loans will be able to use them as collateral to obtain fresh funding from the government to extend credit to new customers worth up to $1 trillion.
TALF is not a simple program to understand, and it’s not directly targeted to the consumer. So, you may just want to skip this reading.
Here’s the short of it. This program will help put in your hands more and cheaper consumer credit: credit cards, auto loans, and the like, but it will take some time to trickle down to the consumer.
That’s the short of it… you can go now.
For the curious masochists that remain, the $200 billion are being offered as credit to investors, with a good collateral, willing to buy Consumer Backed Securities. Which, as mentioned, should hopefully remove enough logs from the consumer credit dam to allow liquidity to flow. It isn’t a sure thing, but, $200 billion buys a lot of peanuts.
I found this very nice video from the Khan Academy in YouTube that explains the repackaging of your loan and others to make a Mortgage Backed Security, which follows the same idea as a Consumer Backed Security.
Courtesy of Khan Academy