The FSP, ARRA, and the flurry of new programs and details in February may not provide the immediate shot in the arm financial markets were looking for, but some of the programs should have substantive, long-lasting positive attributes that could certainly provide a tug in the right direction in the current credit market tug-of-war. We caution that the housing market remains unstable and investor confidence remains low. For the vigilant corporate cash investor, it could mean that although some good opportunities may soon emerge in the non-government credit sectors, research is imperative and patience is a virtue. Tread lightly, but tread nonetheless.
For better or for worse, the Obama Administration’s one-two punches for the sagging U.S. economy are here: the Financial Stability Plan (FSP) was unveiled on February 10, and the American Revitalization and Reinvestment Act (ARRA) were signed into law on February 17. While market responses in the following days were anything but positive, these government measures were not without merit, in our opinion. While it gets confusing and sometimes futile to try to keep track of the new government acronyms, we actually think this coolly-received new development has quite a bit of substance. Our interest, of course, is on how the new programs will impact the corporate treasurer and, more specifically, how they may influence the short-term credit markets?
A Major Breakthrough for Structured Credits
A key component of the Treasury Department’s plan is the revised Term Asset-Backed Securities Loan Faculty (TALF) run by the Federal Reserve Bank of New York. By expanding Treasury’s investments in the program from $20 billion to $100 billion, the program could provide up to $1 trillion in liquidity to a key part of the credit markets that has been frozen solid. By including commercial and non-agency residential mortgages as eligible collateral and investment funds (read hedge funds) as eligible investors, the revised size of the program will partially offset the lost securitization volume seen over the last two years and kick start the consumer credit markets.
DOWNLOAD FULL REPORT