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XMFSinchiruna (26.40)

FED to Accept Credit Card and Auto Loan Debt as Collateral for TAF!!! Huge Bailout Underway!



May 02, 2008 – Comments (8)


THE FEDFed expands auction, accepts wider collateralBy Steve Goldstein, MarketWatchLast update: 10:51 a.m. EDT May 2, 2008

NEW YORK (MarketWatch) -- The Federal Reserve, along with other central banks, said Friday that it was increasing the funding it is providing to banks and announced that, for the first time, it was willing to accept bonds backed by auto loans and credit cards.

"In view of the persistent liquidity pressures in some term funding markets, the European Central Bank, the Federal Reserve and the Swiss National Bank are announcing an expansion of their liquidity measures," the Fed said in a statement.

The Fed took the move in an attempt to flood the market with supply and lower short-term lending rates, such as the London interbank offered rate, or Libor. The U.S. central bank announced an increase, to $75 billion from $50 billion, in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility, beginning with the auction on May 5. This increase will bring the amounts outstanding under the TAF to $150 billion.

The move to expand the TAF was widely anticipated because of strong demand for loans through the program. See full story. "The program is now reaching a magnitude where it can play a significant role in plugging the gap between the remaining demand for unsecured term funding in the bank market and the latest decline in supply following the run on Bear Stearns," wrote Lou Crandall, chief economist for Wrightson ICAP.

The expansion was "probably marginally disappointing because there was a widespread expectation ... that the Fed would extend the term of at least some TAF auctions to three months," wrote Stephen Stanley, chief economist for RBS Greenwich Capital. The TAF, announced on Dec. 12, was followed in March by the creation of several other Fed lending programs targeted at different sectors of the credit markets.

All told, the Fed has now offered to lend up to $462 billion in cash and Treasurys to the markets, in addition to the nearly unlimited funds available through the discount window and the primary credit dealer facility. The three-month Libor rate -- a benchmark for lending between banks -- was 2.78% on Thursday, well above the 2% federal funds rate. Crandall said extra supply from the Fed in the next three weeks should tighten the spread between the Libor and fed funds rates. Deeper cooperationThe Federal Open Market Committee also has authorized further increases in its existing temporary currency-swap arrangements with the European Central Bank and the Swiss National Bank. These arrangements will now provide dollars in amounts of up to $50 billion and $12 billion to the European Central Bank and the Swiss National Bank, respectively, representing increases of $20 billion and $6 billion.

The FOMC also authorized an expansion of the collateral that can be pledged by bond dealers in the Fed's Schedule 2 Term Securities Lending Facility auctions of Treasurys. Primary dealers may now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations. Accepting asset-backed paper could help provide money to the student-loan market, Crandall noted. Steve Goldstein is MarketWatch's London bureau chief. Washington Bureau Chief Rex Nutting contributed to this report.

8 Comments – Post Your Own

#1) On May 02, 2008 at 5:13 PM, leohaas (30.06) wrote:

Not exactly a bailout, unless you think that car loans and credit card loans are going to be defaulted on in big numbers.

The idea here is to keep the market liquid. Regardless of where one stands on all the meddling by the FED, lack of liquidity would spell a real crisis.

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#2) On May 02, 2008 at 5:40 PM, XMFSinchiruna (26.40) wrote:

Leohaas, I DO think that auto loans and credit card loans are going to be defaulted on in big numbers, and so does Goldman Sachs, by the way.  The Fed is trying to keep up and keep the market liquid, but the toxic effect of OTC derivatives and CDOs has been proven to extend far beyond the subprime mortgages where they first made their presence known, spreading to Alt-A, auto loans, credit cards, student loans, commercial real estate, municipal bonds, corporate bonds, etc. etc. etc.  The real crisis you speak of in hypothetical terms is already here.

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#3) On May 02, 2008 at 5:42 PM, abitare (29.91) wrote:

"Bernanke is an idiot" - Jim Rogers on Bloomberg 2008.01.18


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#4) On May 03, 2008 at 8:31 PM, XMFSinchiruna (26.40) wrote:


From The TimesMay 3, 2008
US Federal Reserve and European Central Bank pump an extra $82bn into banking systemGary Duncan, Economics Editor

The US Federal Reserve and the European Central Bank united yesterday to open a new front in their battle to quell the persistent money market strains that are fuelling the global credit crunch.

The Fed and the ECB lined up with the Swiss National Bank (SNB) to mount a third phase of joint operations to curb the transatlantic credit squeeze endangering the world economy. The central banks said that they would again raise sharply, by as much as $82 billion (£42 billion), the amount of funds they were pumping into the US and European banking systems in their effort to rein in elevated market interest rates.

The latest concerted action by the central banks comes as the continuing hoarding of funds by institutions in Europe and America has kept interest rates for lending between commercial banks high – despite an easing of conditions in broader credit markets. Steep money market rates are aggravating the squeeze on lending to companies and households, jeopardising economic prospects.

Yesterday the Fed increased by half, to $150 billion, the value of its Term Auction Facility, a monthly operation set up in December that makes one-month loans to US banks against collateral including devalued mortgage-backed securities.

Since March the Fed has offered US banks $50 billion in a funding auction under the facility every two weeks, but this will be lifted to $75 billion. The Fed is also increasing a currency swap deal with the ECB to $50 billion, from $30 billion, while a similar swap with the Swiss central bank will double in value to $12 billion. Both facilities will be kept in place until at least January.

The enhanced currency swap plan comes amid concerns by the Fed and the European central banks that European banks are exposed to a severe shortage of dollar funds, thus exacerbating stresses in dollar money markets.

The ECB said that it would raise the value of 28-day loans of dollar funds it offers to $25 billion each fortnight – up from irregular $10 billion to $15 billion amounts previously.

The Fed also widened the range of assets it was prepared to accept from US investment banks as backing for lending under another emergency scheme it created in March after the near-collapse of Bear Stearns. The Fed will now take AAA-rated asset-backed securities as collateral for these loans.

The Bank of England did not take part in the concerted action yesterday but did announce that it would increase the monthly funding cushion it provides to Britain’s banks under its regular monthly money market operations. The Bank said that from May 8 it would raise the ceiling on the reserves that UK banks can hold with it to £2.5 billion or 5 per cent of “eligible liabilities” of each bank, whichever was the greater.

The ceiling had previously been set at £1 billion, or 2 per cent.

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#5) On May 13, 2009 at 2:59 AM, AutoLoans (< 20) wrote:

I am very pleased with the thought and don’t feel like adding anything in it. It a perfect answer.

John Assam

Auto Loans 

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#6) On May 13, 2009 at 3:04 AM, AutoLoans (< 20) wrote:

The above thought is smart and doesn’t require any further addition. It’s perfect thought from my side however credit does not matter for auto loans.

John Assam

Auto Loans 

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#7) On December 12, 2009 at 6:38 PM, MattP33 (< 20) wrote:

Thanks a lot for the great and interesting post indeed. It was really interesting to read about the credit card and auto loan debt. I work in this sphere so all information related with it is very useful for me. Thanks a lot one more time and  I will be waiting for other great entries from you in the nearest future.



Matt Peterson from  payday loans

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#8) On August 06, 2010 at 7:43 AM, Daren777 (< 20) wrote:

I think that it's right steps to solve today's economy situation. All government structures must help by different ways to improve financial situation in banks and housholds. A lot of people need help in mortgages. Some people can't pay for insurance. There's another sphere where we need help - payday loans online. It is very popular but very dangerous for some people who can't culculate their expenses.

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