Perception Versus Reality?

Talf, Tarp, Hope for Homeowners underwhelm

By Rob Blackwell and Steven Sloan


It’s becoming something of a pattern: The government announces a program designed to stabilize financial markets or kickstart lending, but after weeks or months of delay, the goal is shifted or the program simply doesn’t work as expected. The latest example is the Federal Reserve Board’s Term Asset-Backed Securities Loan Facility, or Talf, which was hailed as a way to revive consumer lending when it was unveiled in November but generated anemic interest when it was launched last month and attracted even less interest from investors this week. Its weak start is fueling a perception — fair or not — that the government’s strategy for fixing the financial system is not working and that this may have a spillover effect on other initiatives, including the fledgling plan to sell banks’ toxic assets. At least part of the problem is that programs are poorly designed or overly complex. For example, the Treasury did not mandate what banks could do with Tarp money until after it had been distributed, and even then the expectations were vague and shifting. The Talf program is narrowly focused and hard to understand, observers said. “You have the underlying issue of the triple-A requirement, which is a very difficult to satisfy under current market conditions,” said Karen Shaw Petrou, the managing director of Federal Financial Analytics. “The more significant piece of it is the complexity. The deal structure remains complicated, and at least so far, people have decided to stay on the sidelines.”