Hoping to vault over the frozen credit markets and directly reach consumers and businesses, the Federal Reserve and Treasury Department on Tuesday unveiled a $200billion plan they hope will spur up to $1trillion in new lending.
If the program works, it could allow consumers and businesses with good credit histories to borrow more freely, even amid the recession.
Treasury and the Fed will provide $200 billion in financing to encourage investors to purchase top-rated loans whose underlying collateral is pools of car loans, student loans, credit-card debt and loans to small businesses.
The Term Asset-Backed Lending Facility isn't a magic bullet. It will apply only to the safest of loans and to the healthiest of financial institutions, so it can't fix all of what ails the credit markets and the broader economy.
The Fed seeks, however, to show investors that it's safe to get back in the water. The plan builds on a similar effort last year to bypass banks and have the Fed buy the short-term debt issued by corporations. This has allowed big U.S. corporations to avert a funding crisis while the credit markets remained seized up.
“Think about it as the Fed in the period of the crisis being not a central bank but a commercial bank … and doing the functional equivalent of buying loans."
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