My favorite YouTube video is a rendition of “Every Breath You Take” by Columbia University’s Business School’s dean, where he talks about Ben Bernanke. “First you move your lips, hike a few more BPS, I’ll be watching you.” It dates back to 2009. The original song, by the Police, is good, but the aforementioned parody nails Bernanke and the financial crisis we experienced during the Great Recession.
In contrast, this financial crisis doles out remedies in the form of millions and billions. As state unemployment systems blow up, and the second round of small business loans halt as servers cease to handle volumes, we hope that TALF will do better. TALF is an acronym for Term Asset-Backed Securities Loan Facility, a relic of the Great Recession.
TALF is a relic that helped financial companies, particularly those that offer Asset-Based Lending. It is an essential function because it affects behind-the-scenes cash availability to keep credit markets alive.
Today’s read comes from Forbes, and reprises a meeting at the Brookings Instituted with Former Federal Reserve Board Chairman Ben Bernanke, former Treasury Secretary Hank Paulson, predecessors to Steven Mnuchin.
Talking about TALF, N.Y. Fed describes the remedy implemented in 2009:
“The Term Asset-Backed Securities Loan Facility (TALF) began lending in March 2009 to help restore credit to millions of Americans during the financial crisis. Restoring the flow of credit to consumers and small businesses helped to support overall growth throughout the U.S. economy.
TALF worked. It helped revive the ABS market. As investor demand for ABS increased, lenders started making new loans again, which helped to restore the flow of credit to qualified consumers and small businesses.
At a time when millions of Americans needed credit, TALF supported nearly 3 million auto loans, more than 1 million student loans, nearly 900,000 loans to small businesses, and about 150,000 other business loans.
TALF was not a money loser. Instead of loans that might be forgiven, TALF took a position in asset-backed securitizations, and government funds were paid in full. In the current strategy, TALF is reactivated as of March 23, 2020, and:
The TALF will make loans (with 3-year terms) to companies that hold asset-backed securities (ABS) backed by “student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.”
The TALF will make, in aggregate, up to $100 billion in loans through an SPV at the New York Fed. Eligible borrowers are all “U.S. companies that own eligible collateral [certain ABS issued after March 23] and maintain an account relationship with a primary dealer.”
Treasury will make an equity investment of $10 billion in the SPV.
While TALF is not as exciting as mailing stimulus checks to U.S. households, it is an essential tool that will help stabilize credit markets. For a detailed discussion on the ABS market, see here.
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.