World Library  
Flag as Inappropriate
Email this Article

Term Asset-Backed Securities Loan Facility


Term Asset-Backed Securities Loan Facility

The Term Asset-Backed Securities Loan Facility (TALF) is a program created by the U.S. Federal Reserve (the Fed) to spur consumer credit lending. The program was announced on November 25, 2008 and was to support the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA). Under TALF, the Federal Reserve Bank of New York (NY Fed) lent up to $1 trillion (originally planned to be $200 billion) on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. As TALF money did not originate from the U.S. Treasury, the program did not require congressional approval to disburse funds, but an act of Congress forced the Fed to reveal how it lent the money.


  • Purpose 1
  • Structure and terms 2
  • The Public-Private Investment Program 3
  • Congress demands oversight 4
  • See also 5
  • References 6
  • External links 7


The Fed explained the reasoning behind the TALF as follows:

New issuance of ABS declined precipitously in September and came to a halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS soared to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and SBA-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads.[1]

Structure and terms

According to the plan, the NY Fed would spend up to $200 billion in loans to spur the market in securities backed by lending to small business and consumers. Yet, the program closed after only funding the purchase of $43 billion in loans. [2] Barbara Kiviat, [3] TALF money was not to go directly to those small businesses and consumers, but to the issuers of asset-backed securities. The NY Fed would take the securities as collateral for more loans the issuers would ostensibly make. To manage the TALF loans, the NY Fed was to create a special-purpose vehicle (SPV) that would buy the assets securing the TALF loans. The U.S. Treasury's Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008 would finance the first $20 billion of asset purchases by buying debt in the SPV.

Eligible collateral included U.S. dollar-denominated cash ABS with a long-term credit rating in the highest investment-grade rating category from two or more major nationally recognized statistical rating organizations (NRSROs) and do not have a long-term credit rating of below the highest investment-grade rating category from a major NRSRO. Synthetic ABS (credit default swaps on ABS)[4] do not qualify as eligible collateral.[5] The program was launched on March 3, 2009.[6]

Under TALF, the Fed lent $1 trillion to banks and hedge funds at nearly interest-free rates.[7] Because the money came from the Fed and not the Treasury, there was no congressional oversight of how the funds were disbursed, until an act of Congress forced the Fed to open its books. Congressional staffers are examining more than 21,000 transactions.[7] One study estimated that the subsidy rate on the TALF's $12.1 billion of loans to by buy commercial mortgage backed securities (CMBS) was 34 percent.[8]

The Public-Private Investment Program

On March 23, 2009, U.S. Treasury Secretary Timothy Geithner announced the Public-Private Investment Program (PPIP) to help struggling banks by buying up to $1 trillion of toxic assets from their' balance sheets. The program was to revive the market for unpackaged loans and mortgage securities not backed by Fannie Mae, Freddie Mac or other government-supported institutions.[9]

There were two primary programs, the Legacy Loans Program and the Legacy Securities Program.[10] The Federal Deposit Insurance Corporation (FDIC) was to provide non-recourse loan guarantees for up to 85 percent of the purchase price; asset managers were to raise money from private investors, with capital and loans from taxpayers through the U.S. Treasury, TARP and TALF providing the rest of the funds. The initial size of PPIP was projected to be $500 billion[10] of the $1 trillion limit and was expected to free up money for lending.[9]

The major Goldman Sachs added a combined $3.36 billion of the debt, which just months earlier, had been of little interest to buyers.[9]

Michael Schlachter, the managing director of an investment consulting firm in Santa Monica, California called it "absolutely ridiculous" that banks may profit from speculating on toxic debt, when their pursuit of it caused the financial crisis. Schlachter said, “Some of them created this mess, and they are making a killing undoing it.”[9] The prices for some of the securities that PPIP was to buy almost doubled between March 2009 and the end of the year, a rally that was in part caused by traders jumping in before the PPIP funds were available, according to one trader.[9] The director of research at an investment consulting firm said that banks increased their debt holdings following the announcement of PPIP was hardly surprising. “Any time the government says, ‘We’re going to buy something in the securities market,’ they’re putting out a sign that says, ‘Free money, come and get it’,” he said.[9]

Congress demands oversight

In April 2009, Congress passed legislation that included an amendment telling the Fed to reveal the names of the banks and other institutions that received $2.3 trillion in taxpayer-backed bailout loans and other financial assistance.[14] Limited information on 21,000 transactions made by the Fed between December 1, 2007 and July 21, 2010 was released on December 1, 2010[15] and is now being examined by Senate and House staffers. In the history of the Fed, this is the first time it has opened its books to Congress.[7] Bailout aid was sent to banks in

  • Official TALF website at the New York Federal Reserve

External links

  1. ^ Creation of TALF press release Board of Governors of the Federal Reserve System (November 25, 2008). Retrieved April 18, 2011
  2. ^ Wilson, Linus, Toxic Asset Subsidies and the Early Redemption of TALF Loans (August 17, 2011). Available at SSRN:
  3. ^ "TARP goes TALF as FRBNY lends against AAA ABS" Time blog (November 25, 2008). Retrieved April 18, 2011
  4. ^ "Synthetic ABS Nuances" Nomura Fixed Income Research (January 16, 2007). Retrieved April 19, 2011
  5. ^ "Term Asset-Backed Securities Loan Facility (TALF) Terms and Conditions" (PDF) Federal Reserve (November 25, 2008). Retrieved December 23, 2008
  6. ^ Joint press release announcing launch of TALF Board of Governors of the Federal Reserve System and U.S. Department of the Treasury (March 3, 2009). Retrieved April 19, 2011
  7. ^ a b c d e f g h i j k l m n o Matt Taibbi, "The Real Housewives of Wall Street" Rolling Stone (April 12, 2011). Retrieved April 18, 2011
  8. ^ Wilson, Linus, Toxic Asset Subsidies and the Early Redemption of TALF Loans (August 17, 2011). Available at SSRN:
  9. ^ a b c d e f g Christopher Condon and Jody Shenn, "No Good Deed Goes Unpunished as Banks Seek Profits" Bloomberg (January 4, 2010). Retrieved April 19, 2011
  10. ^ a b "Fact Sheet: Public-Private Investment Program" (PDF) U.S. Treasury (March 23, 2009). Retrieved March 26, 2009
  11. ^ Edmund L. Andrews and Eric Dash, "U.S. Expands Plan to Buy Banks’ Troubled Assets" The New York Times (March 23, 2009). Retrieved April 19, 2011
  12. ^ Paul Krugman, "Geithner plan arithmetic" The New York Times blog (March 23, 2009). Retrieved March 27, 2009
  13. ^ John Carney, "Meredith Whitney: A Bad Bank Won't Save Banks" Business Insider (January 29, 2009). Retrieved April 19, 2011
  14. ^ a b "Congress to Fed: Open the Books" Bernie Sanders, U.S. Senator for Vermont. (April 29, 2009). Retrieved April 21, 2011
  15. ^ Don Bauder, "The Federal Reserve's Money Orgy" San Diego Reader (April 27, 2011). Retrieved May 1, 2011


See also

The Fed refuses to provide any information on how it priced individual securities bought with TALF funds. It only provides lump sums of what was spent on a block of securities, but without indication of how many units were bought, making analysis of TALF impossible.[7] The public has no way of knowing how much Waterfall earned on the securities it bought, although the Fed values them at $253.6 million. Securities lawyer and whistleblower Gary J. Aguirre says the pricing information is essential to validating the Fed's role in TALF,[7] to judge how the taxpayers' funds were used. Senator Chuck Grassley has requested detailed information from Waterfall about its transactions and Sanders has asked Federal Reserve chief Ben Bernanke for more detailed information on loans made to Waterfall, former Miami Dolphins owner H. Wayne Huizenga and John Paulson, a hedge fund manager.[7]

[7] As of autumn 2010, about 68 percent, some $150 million, had not yet been paid back.[7], a company once headed by Mack's husband.Credit Suisse Waterfall used the $220 million TALF loans to buy securities, including a large pool of commercial mortgages managed by [7] The way TALF loans were set up, 100 percent of any profit is retained by the borrower, but the Fed and the Treasury absorb any losses. The Fed and the Treasury are funded by taxpayers.[7] Two months after the company was established, the Fed gave them low-interest TALF loans totaling $220 million.[7] Waterfall was capitalized with $14.87 million, presumably from Mack and Karches.[7] In one example highlighted by

[7] "Our jaws are literally dropping as we're reading this." Gummels said each one of the transactions was "outrageous".[14], sponsor of the amendment calling for Fed transparency,Bernie Sanders Said Warren Gunnels, an aide to Senator [7]

This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.

Copyright © World Library Foundation. All rights reserved. eBooks from World eBook Library are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.