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Us Talf Programme Extended Another 6 Months

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Fed Extends TALF Program for Commercial Real Estate (Update2)

By Scott Lanman

Aug. 17 (Bloomberg) -- The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.

The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.

Commercial property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. The extension may help firms such as Vornado Realty Trust, which is considering the sale of commercial MBS through the TALF. Almost $165 billion of mortgages for skyscrapers, shopping malls and hotels are due this year.

While financial-market conditions “have improved considerably in recent months,†the markets for ABS and CMBS “are still impaired and seem likely to remain so for some time,†the Fed and Treasury said.

The central bank said it doesn’t intend to make other types of collateral eligible for the program, indicating officials rejected adding residential mortgage-backed securities after considering such a move for several months. The Fed didn’t rule out a future expansion.

Door Open

Policy makers also left the door open to prolonging the program beyond the new expiration dates, saying they “will consider in the future whether unusual and exigent circumstances warrant a further extension.â€

While extending the TALF, the Fed is trimming or ending other emergency programs. Last week, officials decided to phase out their $300 billion of Treasury-bond purchases through the end of October. The Fed has reduced sales of Term Auction Facility loans to commercial banks by one-third and is letting a money-market lending program end in October.

In June, the Fed extended other emergency-loan programs by three months to Feb. 1.

“The Fed realizes that the markets are getting better but are not yet healthy enough to stand on their own,†said Scott Buchta, a Chicago-based strategist at Guggenheim Capital Markets LLC. The June extension for new CMBS “shows that they feel that market may take a bit longer to get up and running again,†Buchta said.

Restart Market

The Fed began the TALF in March to restart the market for securities backed by auto, credit-card and education loans. In June, the Fed expanded the program to cover as much as $100 billion in loans to support commercial mortgage-backed securities.

Under the plan, the Fed lends to investors to purchase new asset-backed securities as well as commercial real-estate debt.

TALF loans have helped reduce borrowing costs in some markets. The gap, or spread, on top-rated securities backed by consumer loans relative to benchmark interest rates has fallen as much as 2.15 percentage points to 0.60 percentage point since the TALF started in March, JPMorgan Chase & Co. data show.

Since March, the spread on AAA debt backed by commercial real estate has plunged 7.2 percentage points to 4.6 percentage points more than U.S. Treasuries, according to Barclays Capital.

Citigroup Inc., Ford Motor Co. and JPMorgan Chase are among companies that have sold auto and credit-card debt through the TALF. Brookfield Properties Corp. is “thinking about†using the emergency program, Chief Executive Officer Richard Clark said July 29.

Shield From Losses

As of Aug. 12, the Fed’s loans under the program totaled $29.6 billion. The central bank gave the TALF an initial capacity of $200 billion, backed by $20 billion of funds from the Treasury’s Troubled Asset Relief Program to shield the Fed from losses. In February, the Fed and Treasury said the TALF could grow to as much as $1 trillion.

The commercial real-estate industry had asked for an extension of the TALF deadline, saying the program needed more time to get going. The lag time of three to four months to package loans into mortgage-backed securities means that September or October would be the effective end date if the TALF expired in December, according to Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington-based trade group.

Also, 41 House members -- including Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, and Carolyn Maloney, a New York Democrat who heads the Joint Economic Committee -- signed a July 31 letter to Bernanke seeking a one-year extension through December 2010 and asking for a decision by mid-August.

‘Reasonable Chance’

TALF loans for older CMBS have a “reasonable chance†of being extended past March, said Aaron Bryson, an analyst at Barclays Capital in New York.

New York Fed President William Dudley said in June that “there’s a huge administrative hurdle†to expanding TALF to cover residential MBS because each security is different and must be separately evaluated for the size of the haircut that should be applied. The haircut is how much capital investors put up for the Fed loan.

Separately, the Fed is buying as much as $1.25 trillion of residential MBS this year to lower interest rates in housing.

Looks like they think they've put the dollar/bond fire out and are going back to plain vanilla bailouts, albeit of the order of $2.25 trillion.

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A mere 1% drop in the stock market and Benny dear rushes with new announcements of asset inflation measures.

Can't have a dropping SM now can we. Those 200 odd PE ratios must be maintained.

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for how much longer will they get away with this theft


It's time to drag the Fed out from the shadows and open its books to auditors.

Ron Paul is an 11-term Republican congressman from Texas and honorary chairman of the Campaign for Liberty (www.campaignforliberty.com)

The Federal Reserve's unprecedented intervention into the U.S. economy has inflamed more Americans than almost any other issue in recent memory. More than 75 percent of Americans now support an audit of the Federal Reserve system, and it's no wonder.

The most conservative estimates place the potential cost of the Federal Reserve's bailouts and guarantees at about $9 trillion. That is equivalent to more than 60 percent of the U.S. economy, all undertaken by one organization, and almost all of those transactions are exempt from congressional oversight and public scrutiny.

The Fed and its apologists are using bogeymen to deflect criticism. If the Fed were audited, they argue, monetary policy would be compromised as Congress tries to direct the Fed's actions, and the Fed's record of economic stability and low inflation would come to an end. Nothing could be further from the truth.

Legislative proposals such as my bill H.R. 1207, the Federal Reserve Transparency Act, merely remove all exemptions from audits of the Federal Reserve and call for a full audit. Every intervention, every bailout, every credit facility would be subject to an audit.

Nothing in this proposal would call on Congress to involve itself further in monetary policy, as that is completely unnecessary. Article 1, Section 8 of the Constitution already grants Congress the power "to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures." Also, Congress already dictates monetary policy to the Federal Reserve through the mandates of full employment and stable prices.

Arguments that tout the Fed's ability to stabilize the economy or keep inflation low are similarly misguided. The Fed's mismanagement created the Great Depression, the stagflation of the 1970s, and now our current economic crisis. Over the nearly 100 years of the Fed's existence, the dollar has lost nearly 95 percent of its purchasing power. A "mild" rate of inflation of 2 percent per year means that a baby born today will see the dollar's purchasing power erode by a further 75 percent over his lifetime. If this boondoggle is the Fed's definition of stability and sound management of the dollar, I would hate to see what instability looks like.

Yet that is exactly what we face today and in the near future with a federal government and a Federal Reserve working hand in hand to bail out favored Wall Street firms with sums of money that have quickly reached absurd proportions.

We have a national debt approaching $12 trillion, Social Security and Medicare costs skyrocketing, and an economy in worse shape than at any time since the 1930s, and yet our leaders continue to put taxpayers on the hook for trillions of dollars.

The Federal Reserve has used all the tools in its toolbox to try to stave off the inevitable economic collapse caused by its decades of loose monetary policy, all to no avail. Despite all of this mismanagement, we are counseled to keep our faith in the Fed, to trust in the wisdom of the policymakers, and to continue to exempt the Fed from any serious oversight.

The fact that a single entity, the Federal Reserve, has dominated monetary policy for so long has been detrimental to the economy. As long as we try to keep up the fictions that the Federal Reserve works to benefit the American people, that attempting to fix interest rates will not distort the economy, and that the Fed can end a recession by injecting liquidity, we will never free ourselves from the boom and bust of the business cycle.

A necessary first step to restoring economic stability in this country is to audit the Fed, to find out the multitude of sectors in which it has involved itself, and, once the audit has been completed, to analyze the results and determine how the Fed should be reined in.

Proposals to push the Fed back into the shadows, or to give it an even greater role as a guarantor of systemic stability, are as misguided as they are harmful. The Federal Reserve is a creature of Congress, and it is the responsibility of Congress to oversee it. If we fail in this endeavor, we will have only ourselves to blame as our economy sinks deeper into depression.

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So all this money the FED is spending, is US taxpayers?

Also, they are buying rubbish assets that possibly won't be worth as much as they are paying for them? And possibly they are buying stuff that is next to worthless.

So, people who have sold a home at the peak have made an absolute fortune, a lot of mortgage brokers have made a lot of money. All these investment bankers have made big fortunes. And now it has turned out to be a pyramid scheme, and the american taxpayer will be subsidising the bill for generations?

Is that a HPC view of what's happening or is it really what is happening, and if so, why on earth isn't there more protest?

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