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.
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 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.
[3]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.
[10] 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.
[4] 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.
[13] Economist Paul Krugman was very critical of the program, arguing the non-recourse loans led to a hidden subsidy that would be split by asset managers, banks' shareholders and creditors.
[11] 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.
[10] Said Warren Gunnels, an aide to Senator Bernie Sanders, sponsor of the amendment calling for Fed transparency,[16] "Our jaws are literally dropping as we're reading this."
[10] Waterfall used the $220 million TALF loans to buy securities, including a large pool of commercial mortgages managed by Credit Suisse, a company once headed by Mack's husband.
Securities lawyer and whistleblower Gary J. Aguirre says the pricing information is essential to validating the Fed's role in TALF,[10] to judge how the taxpayers' funds were used.