Govt unveils new plan to help free up credit

02.10.09
By Lewis Green

As the most recent data from the Federal Reserve's bank survey reveals, despite last year's bailout, many financial institutions remain reluctant to lend.

Approximately 60 percent of respondents said they have tightened criteria for credit card and consumer loans, while 35 percent trimmed credit limits for existing customers.

The government is looking for other ways of bringing banks back into the lending market. For the past several months, the Fed has been focusing its efforts on unthawing frozen credit.

Today, Treasury Secretary Timothy Geithner unveiled a plan that will expand the Term Asset-Backed Securities Loan Facility (TALF) plan, which was announced in November.

The expansion means that up to $1 trillion could be used to buy up securities backed by debt including credit cards, car loans, student loans, small business loans and commercial real estate loans.

These are exactly the kinds of securities that investors used to purchase, before the subprime mortgage crisis and related fallout scared them off.

Geithner also discussed the creation of a public-private investment fund, in which investors would receive financing in return for buying toxic debt that is currently weighing down banks' balance sheets.

He did not reveal many details about the new program, but congressional aides told the Associated Press the government could spend between $250 billion and $500 billion on its implementation.

It is hoped that these efforts will eventually translate into an increased number of loans for homes, automobiles, higher education and businesses.

"Without credit, economies cannot grow, and right now, critical parts of our financial system are damaged," Geithner said.

However, he was also clear that change will not come quickly. "This comprehensive strategy will cost money, involve risk, and take time," Geithner added.

More Personal Finance Articles | News Home | Discuss in our Forum

The government is looking to unfreeze the credit market