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Your credit market needs plumbing

Bob Moon Mar 19, 2009
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Your credit market needs plumbing

Bob Moon Mar 19, 2009
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TEXT OF STORY

Renita Jablonski: Here’s another way the Fed is playing plumber to the fallout of the financial crisis. Today is the deadline for big investors to apply for the government’s TALF program — that’s T-A-L-F. The idea behind this one is to leave the credit markets flush with cash. Here’s our senior business correspondent, Bob Moon.


Bob Moon: You see, the credit pipeline isn’t really empty. In a way, it’s just clogged — with loans that investors aren’t interested in buying.

Dana Saporta, an economist with New York’s Dresdner Kleinwort, says that’s getting in the way of new loans:

Dana Saporta: Banks are reluctant to make loans to businesses and consumers, because they can’t turn around and repackage these loans into securitized debt and sell them in the market.

So the plumbers at the Federal Reserve are pouring in a little financial Drano, so to speak. Well, not just a little — up to a trillion dollars worth, in the form of cheap loans to big investors.

The Fed’s already had some success freeing up money for mortgages with a similar program. Now, it aims to attract buyers for bundled credit card debt and car, student and small business loans.

Saporta: This is a way for the Fed to sort of encourage demand that would not exist otherwise.

Investors who buy that debt get a steady payout. And if the plan succeeds, banks should have more money to make more loans.

I’m Bob Moon for Marketplace.

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