Understanding Today's Treasury/Federal Reserve Moves in the Lending and Mortgage Markets

Lots of fancy names out there today in press releases: credit facility, asset backed securities, etc.... The New York Times' Jeff Zeleny and Jack Healy have a good write that will keep you on the straight and narrow as to what the government did today.

Here's why you care: For a change we'd like to say ignore the fancy terms because here is the essence of what is going on...

1) The Treasury gave the Federal Reserve some money today so that the Fed could basically lend money to companies that lend to small businesses, provide credit cards and do auto and student loans. Those companies need access to more cash so they can turn around and lend to others - that's the theory behind the move.

2) The Federal Reserve separately said, hey, we know that banks need to sell mortgages to Freddie Mac and Fannie Mae in order to have cash to lend to others. In other words, the system has ground to halt. So, we - the Fed - will buy those bundled mortgages from Freddie Mac and Fannie Mae so they can more easily get back to doing business.

Both moves work on the theory that this will lubricate the gears of lending. That's the take away.

Why You Care wanted to make that really straightforward because with the press conferences, releases, etc. we saw a new acronym - TALF ("Term Asset-Backed Securities Loan Facility"). We thought that you probably just got used to TARP, and now you have TALF. Not easy. (FYI - TALF is item #1 above - keep it simple).

Got questions? Emailwhyyoucare.com.