Will TALF Unthaw the Securitization Markets?
President Barrack Obama and his team of economical advisors revealed the final details regarding the latest bailout program. The TALF (Term Asset Backed Loan Facility) is supposed to provide investors with cheap financing to purchase asset backed securities. Asset backed securities are basically a group of loans that are bundled, given a value, and then sold to investors to reap the profits. Many of these investors are institutional type investors (pension funds, life insurance companies, etc) or foreign investors coming from China, India and the Middle East. Since the Failure of Lehman Brothers these securitization markets have all but dried up. The result has been the loss of credit and a deep recession that our country has not seen since World War II.
The TALF fund is supposed to provide up to $1 trillion in funding for investors to start to purchase these loans once again. However, a lot of people argue that the securitization system is broken. The problem that created this whole mess was the fact that these securities are being rated by independent private credit rating agencies. The credit agencies then rate these securities for investors based on the creditworthiness of these bundled loans. A “AAA “ rating is considered the best, while a “BBB” rating is considered the worst or sub prime. During the housing boom, these credit agencies began “loosening” their standards as to what qualifies a “AAA” rating. “BBB” rated loans were being given a high rating and begin sold to unsuspecting investors. The foreclosure rate on those mortgage asset backed securities and subsequent losses has spooked investors from other types of asset backed securities like credit cards, auto loans and student loans.
The TALF is supposed to insure those loans in case they begin to default. This is supposed to increase investor confidence. Who is going to rate these securitized loans now? If the same credit rating agencies like Moody’s Investors Services or Standard and Poor’s continue to rate the bonds, no one is going to believe them. The government needs to somehow revamp these credit agencies and restore credibility once again. The TALF program is supposed to give investors a renewed sense of security. At this point, I do not understand it 100%, but I am spending some time trying to figure it out.
The bottom line is that we need these securitization markets to start working once again. The lack of credit has spurred huge problems in our economy. Not one sector of the economy has gone unaffected in my opinion. Retailers and other vendors rely on credit to sell consumer products like cars, televisions, clothes, etc. The loss of sales from credit has forced many companies to lay off workers. I am confident that one way or another we will figure a way to get credit flowing again. Once that happens life as we knew it will manifest itself once again.
If you are looking for a way to borrow money (you must have very good credit) or for a way to invest some money, try “The Lending Club”. The lending club allows small investors to invest in securitized loans like the big fish. You (and 50 to 1200 others) will earn interest for lending qualified applicants money to consolidate credit card debt or even start a business. View each applicant’s stats online and make your own decision.
President Barrack Obama and his team of economical advisors revealed the final details regarding the latest bailout program. The TALF (Term Asset Backed Loan Facility) is supposed to provide investors with cheap financing to purchase asset backed securities. Asset backed securities are basically a group of loans that are bundled, given a value, and then sold to investors to reap the profits. Many of these investors are institutional type investors (pension funds, life insurance companies, etc) or foreign investors coming from China, India and the Middle East. Since the Failure of Lehman Brothers these securitization markets have all but dried up. The result has been the loss of credit and a deep recession that our country has not seen since World War II.
The TALF fund is supposed to provide up to $1 trillion in funding for investors to start to purchase these loans once again. However, a lot of people argue that the securitization system is broken. The problem that created this whole mess was the fact that these securities are being rated by independent private credit rating agencies. The credit agencies then rate these securities for investors based on the creditworthiness of these bundled loans. A “AAA “ rating is considered the best, while a “BBB” rating is considered the worst or sub prime. During the housing boom, these credit agencies began “loosening” their standards as to what qualifies a “AAA” rating. “BBB” rated loans were being given a high rating and begin sold to unsuspecting investors. The foreclosure rate on those mortgage asset backed securities and subsequent losses has spooked investors from other types of asset backed securities like credit cards, auto loans and student loans.
The TALF is supposed to insure those loans in case they begin to default. This is supposed to increase investor confidence. Who is going to rate these securitized loans now? If the same credit rating agencies like Moody’s Investors Services or Standard and Poor’s continue to rate the bonds, no one is going to believe them. The government needs to somehow revamp these credit agencies and restore credibility once again. The TALF program is supposed to give investors a renewed sense of security. At this point, I do not understand it 100%, but I am spending some time trying to figure it out.
The bottom line is that we need these securitization markets to start working once again. The lack of credit has spurred huge problems in our economy. Not one sector of the economy has gone unaffected in my opinion. Retailers and other vendors rely on credit to sell consumer products like cars, televisions, clothes, etc. The loss of sales from credit has forced many companies to lay off workers. I am confident that one way or another we will figure a way to get credit flowing again. Once that happens life as we knew it will manifest itself once again.
If you are looking for a way to borrow money (you must have very good credit) or for a way to invest some money, try “The Lending Club”. The lending club allows small investors to invest in securitized loans like the big fish. You (and 50 to 1200 others) will earn interest for lending qualified applicants money to consolidate credit card debt or even start a business. View each applicant’s stats online and make your own decision.
Labels: asset backed securities, credit, economic recesion, institutional investors, President Barrack Obama, TALF, The Lending Club
Credit Card / Financial news blog post by Todd Holliday at 5:50 PM 