Fed Commits $800 Billion More to Unfreeze Lending (on top of the $7.7 Trillion)

[girl gone mad]

Nov. 25 (Bloomberg) -- The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.

The central bank will purchase as much as $600 billion of debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.

With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers hope the initiatives will bring down the interest rates on mortgages and consumer loans, offsetting the withdrawal of private-sector financing.

“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”

The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and Federal Home Loan Banks after the yield premiums on those securities jumped. It will also buy up to $500 billion of mortgage-backed securities issued by Fannie, Freddie and Ginnie Mae, a government agency that insures bonds.

http://www.bloomberg.com/apps/news?pid=20602007&sid=agGWOuloIFxw&refer=govt_bonds

[ixion]

1. of course, that was the central concept of the 700 billion for TARP

but, hey, what's a few trillion between thieves. :grr:

[HamdenRice]

2. True, but Paulson is running around ...

like a chicken with his head cut off rather than doing what the TARP program was designed to do, so Bernanke is doing it himself.