What is TALF?

by: David Norton

From government proposals, to stimulus packages, to reactions on Wall Street, we are seeing much uncertainty in today’s economy. In the beginning of our most recent recession, the causes were unclear. As time has passed, it has been manifested that the underlying issue is a freeze on credit, which has complicated many of the other issues that impede growth in the United States. It is clear to see that there is a problem in consumer confidence, but what is not clear is an answer.

From government proposals, to stimulus packages, to reactions on Wall Street, we are seeing much uncertainty in today’s economy. In the beginning of our most recent recession, the causes were unclear. As time has passed, it has been manifested that the underlying issue is a freeze on credit, which has complicated many of the other issues that impede growth in the United States. It is clear to see that there is a problem in consumer confidence, but what is not clear is an answer.

TALF stands for Term Asset-Backed Securities Loan Facility. Under this provision, the Federal Reserve will lend up to $200 billion in nonrecourse loans to holders of AAA rated Asset Backed Securities (AAA being only the most favorable or highly rated). The goal of TALF is to free up money so consumers can get loans for school, businesses, credit cards, or any worthy expenditure that requires capital. With this $200 billion dollars, lenders will be more susceptible to issue loans to worthy recipients.

Reviews on Wall Street are mixed. Whether TALF is the answer to our problems or not will remain a mystery for some time. It is not uncertain however that the government will continue to spend and spend until there is a solution.


Sources:
http://www.businessweek.com/investor/content/nov2008/pi20081125_381246.htm?campaign_id=rss_daily
NPR
http://curiouscapitalist.blogs.time.com/2008/11/25/tarp-goes-talf-as-frbny-lends-against-aaa-abs/