The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Credit Where Credit is Due…..and Needed

03/07/2010

Most people know that individual home mortgages are put into bundles, which is funded by bond purchases to repay the mortgage originators. This greatly expanded the amount of money available for home mortgages by allowing bond buyers to provide it, a lot of it. Less well known is that the same is done for auto loans, student loans, and equipment loans. When the market collapsed last year, no bond buyers were putting money into anything, for obvious reasons. To get this market for consumer loans functioning again, the Fed made non-recourse loans to bond buyers if they would buy this consumer debt. Effectively, the Fed put $100 billion into consumer loans to kick-start the market. The program was called TALF or Term Asset-backed securities Loan Facility, one of an alphabet variety of surprisingly innovative programs.

The good news is that the program quietly ended last week, as the market for bonds collateralized with consumer debt was functioning normally again. Not only did the taxpayer get all their money back, they even made a profit. I hate to say it but . . . Kudos to Ben Bernanke and the Fed!

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