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TALF’s end signals economic shift

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Kai Ryssdal: All right, we are going to turn now from health care policy to something only slightly less dense. Monetary policy. That is, when you get right down to it, a fancy way of saying, interest rates. Over the past couple of years the Fed has done everything in its power, and some say many things beyond its power, to keep interest rates low. The Fed has made sure there’s plenty of money available to banks that might need it.

One way they’ve done that is with something called the Term Asset-backed Securities Loan Facility. Or better known, mercifully, by its acronym — TALF. Tomorrow’s the deadline for lenders to take advantage of the TALF before it goes away at the end of the month. Our Washington bureau chief John Dimsdale explains now the latest sign that Ben Bernanke is taking the training wheels off the American economy.

JOHN DIMSDALE: In the depths of the 2008 credit crisis, investors in securities made up of things like small business loans and mortgages lost confidence that the assets behind the loans would hold value. Lending became too risky. So the Federal Reserve created the TALF program to back up the assets behind the loans.

Donald Kohn is the vice chairman of the Federal Reserve Board.

DONALD KOHN: So we said, on very conservative terms, we will lend to finance the purchase of these loans in order to get the loans made and the funds flowing to households and businesses.

The program lent more than $46 billion to investors in asset-backed securities.

Reed Auerbach, a partner with Bingham McCutcheon, says, a year later, lending is finally getting back to normal levels.

REED AUERBACH: And yet the use of TALF for what I would call non-esoteric assets, like auto loans and credit cards, has largely declined as a percentage of the deals because it’s not needed anymore.

But Auerbach says lenders are still worried that some jolt to the market could hurt lending again. And there has been a spurt of last minute Fed-supported loans.

Vice-chairman Kohn says that’s because some areas of lending, especially student loans, still haven’t gained the full confidence of private investors.

KOHN: But it’s still time. It’s time to take away the prop and allow the markets to find their own function and do their own pricing.

More training wheels come off at the end of March, when the Fed stops purchasing mortgage-backed securities.

In Washington, I’m John Dimsdale for Marketplace.

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