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The Credit Crisis Recovery Might Be in Trouble if TALF Program Expires

Posted By admin || 8-Sep-2009

According to an article on Reuters, the recent recovery in the credit markets might be in trouble.  The Federal Reserve is getting some of the credit for the rebound by helping the credit markets recover.  One program that the Fed used to get credit flowing again is the Term Asset-Backed Securities Loan Facility, or TALF.  Now, many people are concerned as to whether or not the credit markets will be able to stand on their own at the end of December, because that is when the program is set to expire.

The current program is allowing the Fed to make loans available to investors for the purchase of asset backed securities, otherwise known as ABS.  Asset backed securities are usually made up of auto loans, student loans, and credit cards.  Lenders will package the loans that they have made and then they sell them off as securities in order to get the loans off their books.  This in turn allows the lenders to make more loans.  Almost all industries have companies that currently need loans to grow business, and some companies need loans to remain operational.  If those companies end up with no access to credit they will be forced to make some tough financial decisions.

The $49.7 billion in ABS issuance in the second quarter of 2009 is significantly more than the $13 billion in the first quarter.  This difference is mainly comprised of TALF sales.  Many experts agree that there just aren't enough investors that want to buy ABS without TALF being around.  TALF offers the investors leverage that otherwise wouldn't be there.

What this means to consumers and workers is that you need to either hope that credit will continue to flow once the program expires, or you need to hope that the program deadline gets pushed back.  More and more companies will have to file for Chapter 11 bankruptcy if their lines of credit get cut off, and some companies will be forced to have layoffs and benefit cuts.  With unemployment still on the rise, this wouldn't be a good sign for a recovery.

You will have to wait and see what happens from here, but it is encouraging that the Fed recently extended several funding programs into 2010.  These programs, along with the TALF program, were put in place in 2009 to get credit rolling again.  If TALF's deadline doesn't get extended and the credit markets freeze up again, there could be more corporate bankruptcies on the way.



Categories: Economy
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