May 4, 2009
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News: TALF Optimistic
Investors have demonstrated an increased interest in purchasing asset backed securities. According to the Federal Reserve website, renewed interest sent investors to seek out funds from the Term Asset-Backed Securities Loan Facility (TALF) program offering securities supported by numerous loans including credit card and student loans. Congressional restrictions pertaining to hiring foreign labor and retroactive tax concerns caused the program to experience a slow start. Considered to be the jumpstart for a sagging economy with hopes of ending the recession, the program has been the primary focus by the Federal Reserve and the White House administration. The greatest portion of the sales came from JPMorgan Chase & Co. and General Electric Co. JPMorgan purchased $5 billion backed by credit card payments, the largest sale since the program began while General Electric sold off $1 billion of their credit card payments.
The latest round of loan requests included offerings of $2.18 billion in auto bonds, over $5 billion credit card debt, $2.35 billion of student loans, over $80 million of small business loan bonds, and over $400 million for equipment loans. The modest increased confidence demonstrated by major lenders is good news considering the first two rounds of loans only consisted of auto and credit card securities. Although the loans have yet to be approved, this brings the three month total to nearly $17 billion of the allotted $1 trillion available through TALF. According to the Federal Reserve, the newest round of loans will settle on May 7th and mature on June 4, 2009.
After sales of debt supported by credit cards and auto loan payments plunged 40% last year, the TALF program was launched in an attempt to free up the market. It remains the Federal Reserve’s most valuable trump card. It is too early to say for sure if the program will do what the Fed intended; however, these new results certainly support an optimistic view.