U.S. Bailout Take Two

Details of the U.S. Government’s bailout plan for the nation’s banks were released today.

Round two of the hundreds of billions of dollars for banks and financial institutions is designed to unfreeze the credit markets, what round one of the bailout has failed to do.

The details include a joint Federal Reserve and U.S Tresurery program to encourage investors to buy toxic mortgage-related assets from banks. The Federal Reserve will provide cash for the this ”bad bank”.

Up to $1 trillion of additional money for a program/facility that the Federal Reserve and the Treasury have jointly announced. The money will be lent against AAA-rated asset-backed securities collateralized by recently originated student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration. If the program works as the Fed and Treasury plans, it should help to restart activity in these markets and lead to lower borrowing rates. 

The Fed also plans to continue to purchase debt and mortgage backed securities from the government sponsored enterprises (GSE’s) including Freddie Mac, Fannie Mae and the Federal Home Loan Banks. Again, the idea is to lower mortgage rates to spur housing sales and the greater economy.