Fed Plans to Spend Up to $800 Billion to Jump-Start Lending Markets
Coming in the wake of news that the economy fell even more in the third quarter than previously thought, the government introduced two programs to unfreeze the credit market while President-elect Barack Obama and his new economic team continue to hammer out a plan for reform.
The pair of programs, announced this morning, involves the government infusing the market with up to $800 billion. The Fed will provide $200 billion of that for consumer loans, such as through credit cards, car loans, or student loans. The other $600 billion will be spent in an attempt to directly jump-start the housing market. The majority of the latter sum, up to $500 billion, will be spent on mortgage-backed securities. An additional $100 billion or so will be spent purchasing mortgages held by mortgage giants Fannie Mae, Freddie Mac, and the Federal Home Loan Bank.
No longer in the shadows on the crisis, meanwhile, President-elect Barack Obama also has been making strides to make sure he can deal with the crisis as soon as he takes office. He has been coordinating with President Bush, who said that he'll inform his successor of every "big decision" made.
And yesterday, Obama unveiled his economic team to tackle the crisis. They'll focus on working on a stimulus package that they hope will jump-start the economy. Today, Obama is expected to lay out a vision for the federal budget, attempting to balance the country's economic needs with the need to deflate the record $237.2 billion government deficit.
The announcements came on the heels of more dour economic news. Reports released today show that the economy tumbled more in the third quarter than expected, with the GDP shrinking at a 0.5 percent annual rate from July to September—news that makes it crystal clear, if it wasn't already, that the country is in a recession. Home prices fell in the same period back to levels not seen since 2004, contributing to the largest annual drop in housing prices in more than 20 years.
And earlier this week, the government announced it would funnel $20 billion of its $700 billion rescue package toward struggling banking giant Citigroup, as well as protect it from future losses—a move analysts worry won't be enough.
Reader Comments
Still Saving Banks
Translated, this means that, as a result of things dropping in price and gambles on securities and derivatives, banks have lost or are about to lose a lot of money and the taxpayer is going to absorb their losses.
The very last thing that you should do is give someone who is addicted to gambling more money.
The last thing that the population needs is more loans. Too much of its income is going towards paying interest already. When interest is paid, it goes directly to the banks and does not generate commerce in the economy.
This also will not stop the foreclosures or the loss of jobs, which are the only things that the government should be concerned about.
http://ewebsmith.com/gov/BankBailOut.html
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