Around $14.7 billion in eligible asset-backed securities were sold by American Express, Bank of America, General Electric, Nissan, Ford, and GMAC Inc.’s Ally Bank this round.

In August, $6.9 billion was borrowed and $5.4 billion was borrowed in July by Investors through the TALF program.

The TALF program essential subsidizes investor’s purchases of these assets through artificially low interest rates and non-resource structure, Fed takes bulk of the loss if loan goes bad.

CNNMoney.com – Investors Apply for $6.5 Billion in Loans – http://joeyconway.com/xn5sf9

Reuters – Investors Requested $6.4 bln under Fed – http://joeyconway.com/yaxvzs

Financial Times – Fed lends $6.5bn for securities buys – http://joeyconway.com/tmyrvr

AP – Banks borrow more from emergency Fed loan program – http://joeyconway.com/9qqeh5

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There are two parts to TALF.  One provides loans for market participants to purchase newly issued commercial mortgage-backed securities (CMBS) and the other provides loans for other asset-backed securities (ABS) and CMBS issued before Jan 1^st 2009.  The portion of the program covering newly issued CMBS was extended from Dec 31^st to June 30^th while the portion covering other ABS and older CMBS was extended from Dec 31^st to March 31^st.

The Fed originally started TALF with a capacity of $200 billion and was backed by $20 billion from Treasury’s Troubled Asset Relief Program (TARP).  They later announced it could expand to a capacity of $1 trillion.  The commercial real-estate industry and 41 House members including Barney Frank have requested the Fed extends the program deadline until December 2010.

Even though the capital markets are improving and recovery is slowly bur surely taking place, the Federal Reserve is going to continue helping consumer lenders with tax and printed money.  The Federal Reserve has now extended the TALF program which will continue providing cheap government financing to investors until the Fed decides otherwise.

Bloomberg – Fed Extends TALF Program for Commercial Real Estate: http://joeyconway.com/978hsh

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The majority of monetary policy programs stayed the same.  Fed Funds rate will continue to be held at a record low of 0 – 1/4% for an “extended period.”  The programs to purchase up to $1.25 trillion of agency, GSE (Freddie, Fannie, etc), mortgage-backed securities and up to $200 billion of agency, GSE, debt will continue until the end of 2009 as originally stated in the March 18th announcement.

There has been a change in the program regarding the $300 billion of US Department of Treasury Debt to be purchased, essentially debt monetization.  “…the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.” 

The purchase of $300 billion Treasuries was originally planned to end by September, but now will be extended an extra month.  They word the addition of one month to the Treasury purchase program as follows, “the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.”

The statement then ends with the usual reassurance the Committee will continue to monitor and evaluate its actions based on the changes occurring in the markets and will adjust accordingly.

Federal Reserve Open Market Committee Monetary Policy Announcement Aug 12 2009: http://joeyconway.com/hcrgt6

Bloomberg Article: http://joeyconway.com/w87vt8

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Essentially, the Fed is stating, market participants, without this government program, would not be able to meet the credit needs of households and small businesses.  In simple economic terms, the demand for credit from households and small businesses would not be met with a sufficient supply of credit from market participants.

There are many different ways to approach this situation.  This should be the most straight forward and simple explanation.  Market participants, who are businesses required to turn a profit or they will go bankrupt, will supply credit to these households and small businesses until it becomes too risky resulting in unprofitable loans.  If there is not a sufficient supply of credit in the market, it most likely means supplying credit is not profitable or the risk outweighs the return.  The main risk facing the market participants is that the households and small businesses will default on their credit and the market participants will not make a profit, potentially going bankrupt.

Through this Loan Facility, the Federal Reserve has taken on the role of subsidizing market participants, banks and large investors, thus eliminating some of the downside risk that households and small businesses will default.  Since some of the downside risk has been mitigated by the Fed, the market participants are now in turn willing to supply more credit, make more loans.  The downside risk of potential default by households and small businesses has been transferred from the balance sheet of banks and investors to the Federal Reserve’s balance sheet which is funded through our tax dollars and the Fed’s ability to print dollars. 

CNN Money – Breakdown of TALF Program: To TALF or not to TALF http://joeyconway.com/663n2a

Federal Reserve Definition TALF – http://joeyconway.com/mn5zbc

Federal Reserve TALF F.A.Q. (34 pgs) – http://joeyconway.com/ehnrkp

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