Consumer Credit Assistance Becoming the Focus
After numerous government bailouts, an attempt to help consumers…
As consumers watch the ongoing auto and financial industry bailout debates, consumers continue to wonder: “What about us?’ Well, it appears that the government is starting to direct its attention to the average consumer with the introduction of a new plan called the “Term Asset-Backed Securities Loan Facility”, or TALF, which could help free up credit for consumers by assisting owners of credit-backed securities. The Federal Reserve also announced, in a separate plan, help for people to secure home loans.
The TALF plan will set up a facility with up to $200 billion in funding from the TARP bailout plan to help support holders of securities backed by credit card debt, student, auto and small business loans. In another attempt to help, $600 billion in mortgage-backed securities held by Fannie Mae and Freddie Mac will be purchased, representing the first major attempt by the government to help consumers. The idea behind both measures is to make it easier for the average consumer get their hands on various forms of credit.
The recent passage of the Emergency Economic Stabilization Act of 2008 gave authority to the US Government to establish and manage a Troubled Assets Relief Program (TARP) which was to distribute $250 billion for immediate use, $100 billion requiring the Presidents approval and $350 billion subject to Congressional approval. With $290 of the first allotment funding allocated by TARP to banks and insurers, the financial institutions still find themselves strapped and unable to sell existing debt to investors, losing their primary way of funding new loans.
The focus is now shifting to secure the consumer credit market and that’s where TALF comes in with efforts to support the economy through those who actually do the spending and borrowing. But don’t hold your breath - don’t expect immediate relief, the government said increased lending won’t kick in until February. “I am cautiously optimistic,” said Chris Probyn, chief economist with State Street Global Advisors. “The government has subtly reversed course. The original idea of the bailout was to remove toxic assets from the balance sheets of banks. That was subsequently abandoned but they are getting back to it. That’s a good thing.”
Economist praised the two new programs saying that more will probably be done to further help consumers. “The contagion from mortgages has worked its way into other areas such as auto loans and credit cards. So this addresses that,” said Ray Stone, economist with Stone & McCarthy Research Associates in Princeton, N.J. “My impression is this may not be the end of the road either, but just a first attempt.”
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