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...American economy should be so lucky. Buried among the Fed's most recent comments on the economy were concerns about the financial and credit markets as well as employment and spending. Since the minutes are distilled before being sent out to be reviewed by an anxious public, the actual concerns among the Fed governors has probably been significantly understated. (See pictures of the Top 10 scared traders...
...news on another front that could undermine the surge. The second round of the Federal Reserve's attempt to restart the nonbank consumer-lending market, the so-called TALF program, went even worse than the faltering first round did last month. The poor performance is causing some Fed officials to doubt the entire premise of the effort to restart nonbank credit markets. "We know there are people out there interested in putting subscriptions together," says a Fed official, "but the larger question is, Where is the market [for them...
...York Federal Reserve says the second round of TALF lending amounts to just two issues for $1.7 billion in loans, divided roughly equally between auto and credit cards. The $1.7 billion is well below the $4.7 billion in loans from last month. Fed officials say they will return after the holiday weekend to try and get a sense of why the subscription was so light. (Read "Doubts Raised About Government Plan to Boost Consumer Lending...
There are three possible reasons for the shortfall in demand. First, there have been disagreements over terms between some of the dealers who are packaging consumer loans and the investors they want to sell them to. The New York Fed has engaged both sides in several of these disputes and believes it can resolve the problems, says the Fed official. The second potential reason for the TALF shortfall is fear of retroactive penalties from Washington. "There's nervousness about the possibility of retroactive action by Congress," says a government official...
...last possibility may be the most worrying - that there has been a fundamental shift in the appetite for nonbank securitized loans, which previously represented some 40% of U.S. consumer lending. "The Fed and Treasury have said we're prepared to lend up to $200 billion for small business, auto, student and other kinds of loans, but what is the market for them?" says the Fed official. "You still have to figure out what the demand is at this point, because of the state of the economy and whether people are comfortable doing these [securitized nonbank loans...