March 20, 2009

• TALF – Mr. O's Consumer Loan Plan, Pt.4
    When can we start? What do I do?

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  So far, prospective investors are accepting a start-up trial run of $4.7 billion worth of loans in total. Of these, $2.8 billion is to back credit card securities and the other $1.9 billion is to back car loans. Unfortunately, none were for student or Small Business loans. At least, this is a start. The hope is that the program will continue growing in the future. The importance of re-building the asset-backed securities market is because of the extreme dependency that has evolved in the credit card and other key lending industries. Since it died, the major credit card lenders and other small business and consumer lenders (like car loans) have been virtually shut down.

  The allure of these securities is that they are triple-A rated. They're the best. This offers a rare opportunity for investors to redeem themselves from the junk bond days and the original securitization debacle. Credit-ratings agencies, like Fitch, Moody's and S & P have a lot to gain also, as far as credibility goes. It could turn out to be very popular. The credit card industry could recover much sooner (along with my stock holdings). They can ‘sell off' many of their outstanding credit card loans and start afresh.

  So, when can we get started? Would you believe...yesterday? Literally, Thursday (yesterday) was the cutoff for investors to make their bids. The requests had to be submitted to the Fed and specify how much of a security, or securities they wanted to buy. At that time they also had to documents the collateral they could put up to back these loans. The requirement is that (like with banks with credit card loans) the investors must put up 10% in collateral.

  These bids are in review by the Fed right now to determine eligibility. They will then, divi up what's available according to what is in demand. The three-year loans will be made available by the central bank next week. It would be so nice to see a credit card recovery within 3 to 6 months Watch the market...it may start to climb.

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