Fed and Treasury Announce Plan to Jumpstart Lending
Tuesday November 25, 2008
CNN Money reports in this article that the Federal Reserve and the U.S. Treasury have announced am 800 billion dollar plan to try to jumpstart lending by banks to consumers and small businesses.
According to the report, one part of the plan includes making $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, including credit cards, car loans, student loans and loans backed by the U.S. Small Business Administration (SBA). The Treasury Department will allocate $20 billion, or 10 percent, as a guaranty fund to protect the New York Fed from losses under the program.
The Federal Reserve also announced it will purchase up to $500 billion in mortgage-backed securities that are backed by Fannie Mae, Freddie Mac and Ginnie Mae, the three government-sponsored mortgage finance firms. It will also buy another $100 billion in direct debt that was issued by those three firms.
The hope for the plan - which is completely separate from the previous 700 billion dollar plan approved for the financial industry - is that it will be easier and more profitable for banks to loan money to consumers and small businesses.
The Fed said the money will come from an increase in its reserves. In other words, it will create new money.
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According to the report, one part of the plan includes making $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, including credit cards, car loans, student loans and loans backed by the U.S. Small Business Administration (SBA). The Treasury Department will allocate $20 billion, or 10 percent, as a guaranty fund to protect the New York Fed from losses under the program.
The Federal Reserve also announced it will purchase up to $500 billion in mortgage-backed securities that are backed by Fannie Mae, Freddie Mac and Ginnie Mae, the three government-sponsored mortgage finance firms. It will also buy another $100 billion in direct debt that was issued by those three firms.
The hope for the plan - which is completely separate from the previous 700 billion dollar plan approved for the financial industry - is that it will be easier and more profitable for banks to loan money to consumers and small businesses.
The Fed said the money will come from an increase in its reserves. In other words, it will create new money.
Related topics:
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