Will You See Any Money From the New $800 Billion Bailout?

Banks and credit cards have been unable to extend credit to consumers throughout the credit crisis. Previously, they were able to offer credit by selling off the loans they’d already made. When investors stopped buying the consumer debt due to the increased risks of doing so, consumer credit lending basically came to a standstill.

The Federal Reserve and Treasury Department announced a plan on December 2 that’s designed to inject $800 billion into the US economy. The addition of this new “bailout” is not a sign that the first $700 billion bailout of banks and Wall Street has failed, according to Treasury Secretary Henry Paulson, but an additional measure to more directly help the owners of securities that are backed by credit card debt, auto loans, student loans and small business loans. The Federal Reserve Bank of New York will lend $200 billion from the $800 billion TALF (Term Asset-Backed Securities Loan Facility) initiative, and the Treasury Department will put in another $20 billion from the original $700 billion bailout.

The TALF does differ in one major way from the other initiatives from the Treasury Department and Federal Reserve: It might finally help consumers. The goal of it is to free up more money to flow to consumers as banks begin lending money again. If this plan works, investors who are interested in buying loans bundled together into securities will have money available to do so; the banks will then have money available to lend profitably again, which gives consumers access to credit sources. So while the new initiative won’t put money directly into your bank account, it should make it possible for you to get approved for credit once again.

Tags: $800 billion dollar bailout, bailout plan, new bailout

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