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

Situation: The Federal Reserve is one of Wall Street’s biggest customers.  There are many markets but for the mortgage-backed securities (MBS) market, the Fed purchases more bonds in this market than any other party.  In fact, as of last Thursday, the Fed claimed to hold $542 billion on its balance sheet in MBS.

Regarding the Federal Reserve’s role as a player in the markets, from the FT article, “A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them (the Fed). Their transparency hurts them. Everyone picks their pocket.”

Now in response to this, from the FT article, Senator ”Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilising the financial system. “You can’t rescue the credit system without benefiting some of the people in it.”

Now to help clarify the justification Barney Frank provides, from the FT article, “…another official familiar with the matter said the central bank “has heard that dealers load up on securities to sell to the Fed. There is concern, but policy goals override other considerations.”

At the very least, we are told, policy goals override any other considerations implying we shouldn’t be concerned if one group of people benefit at the expense of another.  We are told, one group of people may benefit  (profiteering) from the federal government’s intervention, but it is justified because the end goal is to stabalize the financial system. 

Can the financial system be stabalizied without profiteering?

Financial Times Article: http://joeyconway.com/s5nd6c