Throw in the Kitchen Sink!!

On the front page of today's Money & Investing section of the Wall Street Journal the front and center article outlined all the new plans the Federal Government is putting in place to boost consumer loans and help keep yields low. The article was titled Fear Recedes in the Debt Markets, and it is quite clear why. The Federal government has decided they can't decide what new tool implemented out of all the various options considered in the last few months, so they have decided to do them all! I would hope fears have receded because the whole financial market has been effectively backed by a boat load of government guarantees.  

Here is a list of each program proposed to be implemented thus far (that I know of), some are old favorites but the Fed has some nice new ones:

 Directly under the Treasury 

  • Troubled Assets Relief Program (TARP) - this program has changed over the last couple of weeks. First introduced as a tool to purchase toxic assets off the balance sheets of financial institutions, Secretary Paulson indicated 2 weeks ago will instead be making direct equity contributions. He has also indicated that he will reserve nearly $400 billion for the use of the next administration. 

 Directly under the Federal Reserve

  • Term Asset-Backed Securities Loan Facility (TALF). This facility will lend as much as $200 billion to holders of certain high grade securities backed by assets such as student loans, credit-card loans, auto loans and small-business loans. Only $20 million of this $200 Billion of which will be backed by TARP. 
  • Direct purchase of $500 billion of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. 
  • Direct purchase of $100 billion of Fannie, Freddie, Ginnie and the Federal Home Loan Bank debt securities through a reverse auction starting next week.  Apparently Secretary Paulson didn't see this fitting into TARP but someone thought it was still necessary. I am assuming this will allow toxic debt to come off of balance sheets and held by the Fed. 

 Directly under the FDIC 

  • FDIC insurance on Financial Notes. This is a boost to the bond markets. The FDIC backed the first issuance of financial corporate bonds Tuesday when Goldman Sachs issued $5 Billion of three year notes. The Government backing nearly halved the yield on the notes to about 3.25%. 

 Looking over the list I see everything. I have not heard of any other finance industry related rescue plan since this crisis began. It seems as though the Federal Government couldn't decide what would work so they swooped in and backed everything. We will never be able to know if this was all necessary. I would never want to be in Secretary Paulson's place now, so I will only assume he is making the best choices he can given the information. I just hope this is enough to stem market fears in the long term and induce private investors back in the market because this is it. The government is out of ideas.  


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