New FED Program - Will it Un-Freeze Lending by Consumers, Businesses?
TERM ASSET-BACKED SECURITIES LOAN FACILITY (TALF) WOULD BE BACKED BY CERTAIN CONSUMER AND SMALL BUSINESS DEBT!
Today, across the U.S., money is tight! Financing for small businesses seeking to grow or purchase new capital equipment is tough to come by. Mortgage Loans and Auto Loans for consumers - in some cases, hard to find.
The Obama Administration and his Economic Team hopes to un-freeze critical financing assets through the Federal Reserve. It would rely on the U.S. Government making loans to investors, mainly Hedge Fund Companies, so long as they use the government money to purchase securities backed by credit card, student, auto, and small business loans. See Liz Rappaport and Jon Hilsenrath's story in yesterday's online Wall Street Journal for more info.
Under the program, the Fed would not acquire the securities themselves. Instead, they would lend money to professional investors who agree to buy them, with certain strings attached. In essence, the U.S. Government would be de-facto guaranteeing the investor's loans.
Several Hedge Funds are excited about the new program. They see a low-risk way to make a potential double-digit return on investment. Depending on the nature of the program, investors will like get about $100 of available funds to lend for every $5 to $16 they invest.
Hedge Funds are unregulated, however, and lending to them poses some risks. But the Fed sees the more positive benefits of getting more financing money to consumers and businesses. If all the details are worked out, the new Fed program is likely to begin later in February.
New U.S. Treasury Secretary Timothy Geithner will be announcing other programs offering financial rescue this Monday, February 9th.
DEAN MOSS & DEAN'S TEAM CHICAGO
