Under a new Fed program for consumer debt, the US government will lend up to $200 billion to financial institutions that hold securities backed by various types of consumer loans such as credit cards and auto and student loans. The goal is to provide greater demand for these securities, which in turn should make more money available to the consumer loan market, in the end leading to lower consumer interest rates.
That's the plan, anyway.
"This is aimed at increasing the availability of affordable lending," said Secretary Paulson at a briefing for reporters.
This new Term Asset-Backed Securities Loan Facility, or TALF, will be supported by $20 billion of equity backing from the Treasury's $700 billion Troubled Asset Rescue Program, known familiarly in Washington as TARP.
He also announced a separate $600 billion effort to buy up mortgage-backed assets in an effort to get money flowing in mortgage markets again, at lower rates.
As much as $100 billion of this program will go for purchases of assets from mortgage giants Fannie Mae and Freddie Mac, and the Federal Home Loan Bank. The rest will be used to buy mortgage-backed securities, the now-infamous pools of mortgages – some of them shaky – that were bundled together and sold to investors.
The current financial situation is historic and unpredictable, said Paulson.
The Treasury chief added that he knows many people wish there were a single action the US government could take, or a single bill that Congress could pass, to fix the situation. But there isn't, he said.