The government announced yesterday a new plan that would invest nearly $800 billion to make home mortgages, car loans and credit lines more accessible to Americans. This plan would hopefully boost spending by lowering interest rates.
This new proposal requires the Federal Reserve to spend up to $500 billion to buy securities backed by mortgages that were guaranteed by government sponsored enterprises Fannie Mae and Freddie Mac. The Federal Reserve will also buy up to $100 billion of Fannie Mae and Freddie Mac’s debt in order to expand their lending lines.
Meanwhile, the Federal Reserve and United States Treasury Department will also utilize a $200 billion program for a Term Asset Backed Securities Loan Facility that will lend against securities backed by car loans, student loans, credit card lending and small business loans that were backed by the Small Business Administration. The Treasury will provide $20 billion in credit protection to the Federal Reserve in connection to this program.
United States Secretary of the Treasury, Henry Paulson, released a press statement yesterday announcing the program.
The Washington Post reports on this crucial matter here.