It's called "TALF," and it really stands for the 'Term Asset-backed Loan Facility' program Geithner and the Fed launched in March, committing $200 billion of your taxpayer dollars. (Soon to expand up to $1 trillion). But wow, is it ever an amazing loan finance program! A private "investor" (some individual or more likely a corporation with big bucks, can put down 6% and Uncle Sam will pony up the remaining 94% in a non-recourse loan. That means if, for any reason, they sour on the deal they can walk away and will not be held responsible for paying back that 96%. So theoretically, this investor could put down $600k, receive a check from the government for a cool ten million, and spend it all with no obligation to repay it. If he walks away all he loses is the initial $600k down, but he got ten million for that, so sign me up today!
It gets better. These loans are in the form of a security that is collateralized by student loan portfolios, credit card accounts, and groups of auto loans. They are re-starting the securities game that destroyed the housing market! In an effort to get credit flowing again, Geithner desperately wants to revive securities trading in this area. Bear in mind that, as the name implies, these 'securities' are really just ways for banks and investors to avoid risk--like all the sub-prime loans that were bundled into securities and traded away to fat cats in China, (who are now just a tad peeved, I might add). It's a way of passing risk of default in the loans underlying the security on to the next chump, so understandably the Boyz created a big trading game on these things, and then dreamed up insurance policies called Credit Default Swaps to further isolate themselves from risk. Think AIG here--that's where billions of taxpayer dollars went recently, so AIG could pay off this swap insurance on securities that went bad. The game was so fun that the Boyz started taking out bets on which securities would actually go bad, cute little gentlemen's agreements called "Derivatives." There are mountains of these derivatives bets that were made against housing securities stacked up in the vaults of Citigroup, BofA, and JP Morgan/Chase--all bad bets that are now IOUs to some "counterparty" out there in the shadow world of financing.
So an investor plunks down $600k, gets a "security" valued at $10 million AND a guarantee from Uncle Sam that the value will not depreciate if the underlying loans go bad. That's what killed the housing market--an accounting rule called "mark to market." It basically said that if Joe Shmoe walked away from his home, defaulting on the loan, and the house depreciated to 50% of its original value, then the value of the security relying on that house for collateral would also be reduced. But not this time. The Amazing Loan Financing program says your 94% free security for $10 million never depreciates. Soooo...That makes it a government backed miracle, and something that will be extremely easy to sell or trade to another fat cat "investor." Put your $600k down, buy a security, sell it to another fat cat for $10 million and smile. Presto! The securities trading tables are up and running again!
Basically what TALF does is remove virtually all risk to investors so they will start buying, selling and trading securities again, and re-issuing swaps and derivatives and all the rest. It's been so lonely around the craps and roulette tables these last six months. It used to be that cops would seek out these gambling houses and bust them up. Now the Feds are basically setting up new gaming sites all over town, and begging the gangsters to come back. The Boyz can buy a security, sell it off to another "investor" keep the profits, and they have no risk. Who gets the risk? You do. If anything defaults and goes bad, Uncle Sam picks up the tab using taxpayer funds, social security funds, or just by ramping up the printing press and printing more greenbacks.
Do you see the basic premise underlying the TALF program? Do you smell the steaming pile of god awful truth sitting there? Unless the Boyz get their money, guaranteed, and in truck loads, they won't play the game. If they won't play the game, then you don't get an auto loan, and GM goes down. It's that simple. The wealthy are so powerful now that we have to pay them off in the equivalent of 94% tribute. Nothing happens for you and me unless the Rich Dads are taken care of first.
Now consider this--car buyers spent about $220 billion last year to buy new autos in the US. For the $1 trillion Uncle Sam is setting aside in this TALF program, the government could have picked up the tab for all the cars bought in the US for the next five years instead of giving it away to wealthy Rich Dads. (They could have also put a condition that it would only be for US made cars.) Meanwhile, Chrysler and GM go into bankruptcy, and you keep wondering how long that '91 Honda will keep running.
It gets better. These loans are in the form of a security that is collateralized by student loan portfolios, credit card accounts, and groups of auto loans. They are re-starting the securities game that destroyed the housing market! In an effort to get credit flowing again, Geithner desperately wants to revive securities trading in this area. Bear in mind that, as the name implies, these 'securities' are really just ways for banks and investors to avoid risk--like all the sub-prime loans that were bundled into securities and traded away to fat cats in China, (who are now just a tad peeved, I might add). It's a way of passing risk of default in the loans underlying the security on to the next chump, so understandably the Boyz created a big trading game on these things, and then dreamed up insurance policies called Credit Default Swaps to further isolate themselves from risk. Think AIG here--that's where billions of taxpayer dollars went recently, so AIG could pay off this swap insurance on securities that went bad. The game was so fun that the Boyz started taking out bets on which securities would actually go bad, cute little gentlemen's agreements called "Derivatives." There are mountains of these derivatives bets that were made against housing securities stacked up in the vaults of Citigroup, BofA, and JP Morgan/Chase--all bad bets that are now IOUs to some "counterparty" out there in the shadow world of financing.
So an investor plunks down $600k, gets a "security" valued at $10 million AND a guarantee from Uncle Sam that the value will not depreciate if the underlying loans go bad. That's what killed the housing market--an accounting rule called "mark to market." It basically said that if Joe Shmoe walked away from his home, defaulting on the loan, and the house depreciated to 50% of its original value, then the value of the security relying on that house for collateral would also be reduced. But not this time. The Amazing Loan Financing program says your 94% free security for $10 million never depreciates. Soooo...That makes it a government backed miracle, and something that will be extremely easy to sell or trade to another fat cat "investor." Put your $600k down, buy a security, sell it to another fat cat for $10 million and smile. Presto! The securities trading tables are up and running again!
Basically what TALF does is remove virtually all risk to investors so they will start buying, selling and trading securities again, and re-issuing swaps and derivatives and all the rest. It's been so lonely around the craps and roulette tables these last six months. It used to be that cops would seek out these gambling houses and bust them up. Now the Feds are basically setting up new gaming sites all over town, and begging the gangsters to come back. The Boyz can buy a security, sell it off to another "investor" keep the profits, and they have no risk. Who gets the risk? You do. If anything defaults and goes bad, Uncle Sam picks up the tab using taxpayer funds, social security funds, or just by ramping up the printing press and printing more greenbacks.
Do you see the basic premise underlying the TALF program? Do you smell the steaming pile of god awful truth sitting there? Unless the Boyz get their money, guaranteed, and in truck loads, they won't play the game. If they won't play the game, then you don't get an auto loan, and GM goes down. It's that simple. The wealthy are so powerful now that we have to pay them off in the equivalent of 94% tribute. Nothing happens for you and me unless the Rich Dads are taken care of first.
Now consider this--car buyers spent about $220 billion last year to buy new autos in the US. For the $1 trillion Uncle Sam is setting aside in this TALF program, the government could have picked up the tab for all the cars bought in the US for the next five years instead of giving it away to wealthy Rich Dads. (They could have also put a condition that it would only be for US made cars.) Meanwhile, Chrysler and GM go into bankruptcy, and you keep wondering how long that '91 Honda will keep running.
