Tuesday, November 25, 2008

Ouroboros

OK, the bailout has officially jumped the shark. From the Treasury:

Treasury Provides TARP Funds to Federal Reserve Consumer ABS Lending Facility

Washington-- The U.S. Treasury Department today announced it will allocate $20 billion to back a lending facility for the consumer asset backed securities market established by the Federal Reserve Bank of New York.

The asset backed securities market provides liquidity to financial institutions that provide small business loans and consumer lending such as auto loans, student loans, and credit cards. While ABS issuances in these categories were roughly $240 billion in 2007, issuance of consumer ABS declined precipitously in the third quarter of 2008 before essentially coming to a halt in October. Continued disruption in the ABS market could further deteriorate credit availability for consumers and increase the prospects for further deterioration in the economy generally...

Under the new facility, the Federal Reserve Bank of New York will lend up to $200 billion on a non-recourse basis to holders of newly issued AAA-rated ABS for a term of at least one year. The Federal Reserve will lend an amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS. The U.S. Treasury Department will provide a $20 billion of credit protection to the Federal Reserve in connection with the facility, using its authorities in the Emergency Economic Stabilization Act of 2008. The attached term sheet describes the basic terms and operational details of the facility.
You read correctly: The Treasury is bailing out the Federal Reserve so it can bail out credit card debt issuers so they can bail out consumers. The twists of logic needed to explain a move like this are beyond me. It should be obvious to everyone by now that these guys haven't a clue.

5 comments :

Bryan said...

And consumers then pay tax and "bail out" the treasury. It's all part of the circle of life. Haven't you seen the Lion King?

patient renter said...

Last I checked, nobody I know has had any trouble getting an auto loan or a CC. The premises used for these bailouts are getting weaker and weaker.

Anonymous said...

"Last I checked, nobody I know has had any trouble getting an auto loan or a CC."

I just leased a fancy new car last week and got a smoking deal with no issues. Money factor of .0012 and $200 below invoice.

What credit crisis?

Deflationary Jane said...

No one I know is having credit issues. My girlfriend who was having such a bad time with realtors is now in escrow. I just just got a pre-approval for a mortgage. I had to document my income, tax returns, etc but sheesh - soooo easy.

Now I do see job issues all around me, but credit seems fine everywhere I look.

patient renter said...

I know there are some problems with certain types of lending, but for the most part, particularly with consumer lending, things seem fine.

So overall I see this as a lending shakedown. What else is it when rates are still very low, historically speaking, yet the government is still trying to press lower rates and more lending. Why? It's a shakedown!