TALF? TARP? Let's call the whole thing off

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When are the acronyms going to stop?

First, people had to learn not to associate TARP with a tent. Now, comes the TALF (Term Asset -Backed Securities Loan Facility) which sounds like something my cat would cough up. In fact, it is a new $1 trillion program designed to unfreeze credit markets for consumers.

Under terms of the program, the Fed will provide $200 billion to spur consumer lending. The way the plan works, institutional investors will borrow money from TALF and use it to buy packages of car, college, credit card and other consumer loans. That should create a market for the securitized loans and enable banks to issue additional loans. Companies and investors who want to borrow money under the new program must pledge eligible collateral for the three-year loans which will be issued March 25.

"The asset-backed securities market has been under strain for some months," the Federal Reserve Bank of New York said in a statement. "Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to the weakening of U.S. economic activity."

Credit markets have been frozen solid for months. Banks are making it difficult for people and businesses with good credit to get funds. Builders who have never given their lending institutions a lick of trouble are having to put up their homes as collateral for loans. Consumers with good payment histories are having the limits on their credit cards reduced and in some cases seeing their accounts canceled.

President Obama and members of Congress have thumped their chests repeatedly, declaring that they were working dilligently to make the banks lend money. In testimony today before the U.S. Congress, Treasury Secretary Timothy Geithner reiterated that the government assistance can't be used to do things like pay executive bonuses and provide dividends to shareholders.

"This crisis is severe and putting so much pressure on the system that we have to do more," he said.

Dean Baker, co-director of the Center for Economic Policy in Washington, said more details about the TALF need to be learned such as how the securities will be structured. He argues that the extent of the credit crunch has been exaggerated. People and businesses are facing credit problems because they are worse credit risks for banks.

Bloomberg News noted that the Treasury Department elminated pay restrictions for TALF recipients that were part of the TARP. Bankers complained repeatedly that the pay rules would make it more difficult to attract and retain executives.

"Given the goals of the TALF and the desire of market participants to stimulate credit formation and utilize the facility, the restrictions will not be applied," the Fed says.

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