Alphabet soup sometimes spells help

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Because of the recession and multiple bailouts, acronyms have been bandied about like cotton candy at the county fair.

But there are so many new programs that it can be confusing to consumers on Main Street.

Two of the main programs have similar-sounding acronyms, but are administered by different federal agencies.

The Term Asset-Backed Securities Loan Facility, or TALF, is a Federal Reserve program. The TARP, or the Troubled Assets Relief Program, was created under the Emergency Economic Stimulation Act, and is a part of the U.S. Treasury Department.

The Treasury Department has to tax or borrow to get money, whereas the Federal Reserve, to oversimplify, can essentially print money.

Until about a year ago, the Fed’s monetary base had hovered for many years between $500 billion and $800 billion. Now the base is at $2.1 trillion, said Ron Phillips, an economics professor at Colorado State University at Fort Collins.

The Feds allotted $200 billion to TALF, but so far have only pumped $15 billion into the system. The money went to banks’ reserves, but they’re not loaning it, Phillips said, because economic conditions are still uncertain enough that banks don’t want to turn around and make more bad loans.

“You can’t really force banks to loan, and during down times, banks accumulate reserves,” he said.

Of course, the government is hoping that the Treasury spending stimulates the economy and gets things going so banks can loan money again.

“But the bottom line is not to expect a whole lot of help from TALF,” Phillips said.

However, the financial markets have been healing themselves and low interest rates have helped households and institutions, said Elliot Eisenberg, senior economist for the National Association of Home Builders.

Although none of these programs have helped much with eliminating toxic assets, they did address “immediate concerns of survival, but not long-term concerns,” he said.

During September, the economy “really went into a freefall,” Eisenberg said, necessitating the invention of TARP, which, originally, was to be used to buy up the toxic assets of financial institutions.

By November, the program “morphed from toxic assets to helping banks and automakers recapitalize,” Eisenberg said. And now some of those banks have repaid the money.

The TARP program was a “reasonably logical thing to do,” and, over time, the program has gained “some modicum of sanity to the process” that wasn’t initially there, he said.

By contrast, with the TALF program, the Federal Reserve “has created a monster of a four-syllable acronym,” he said. “It’s all to give liquidity and aimed at different sectors of the credit market. TALF tries to help collateralize small business loans, student loans, auto loans and credit card loans.”

Car loans and student loans are held in securitized packages —“these markets would fail without it,” Eisenberg said. “The Federal Reserve steps in and says ‘we’ll guarantee the loans.’” That’s because some sectors of the economy are too important to fail.

“Should they normally do this? No,” he said. “I’m a free market guy, but without this — we’d be going to hell in a hand basket.”