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TALF Off To A Slow Start

A very important program—the TALF—is off to a slow start due to political risks surrounding the program.

The Term Asset-Backed Securities Loan Facility has finally started, with $200 billion initially available to assist in the buying of asset-backed paper: auto loans, credit card receivables, student loans, etc.

But today the Fed said investors have applied for only $4.7 billion in loans.

Only four TALF-eligible deals have been announced so far:

-Huntington National Bank priced a $963 million bond offering backed by auto receivables;

-Ford Motor Credit sold $2.954 billion in bonds backed by auto receivables;

-Nissan sold $1.3 in bonds also backed by auto receivables;

-Citi sold $3 billion in bonds backed by credit card receivables.

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That's a total of $8.3 billion. Only $4.7 billion has been applied for in TALF loans, implying that the securities were partly purchased by investors who intended to obtain a TALF loan, and some who have not.

Undoubtedly more deals will be announced soon, but $4.7 billion after weeks of wrangling, with $200 billion available? That is disappointing.

Hedge fund investors I have spoken to are not surprised. They make several points to me:

1) There is not that much qualified paper to buy;

2) Once you buy the paper, you can't trade out of it, when you're in, you're in;

3) Investors watching the AIG debacle are convinced that a contract with the government is no contract at all, that they will change the rules in the middle of the game putting all sorts of restrictions on anyone who participates in the program.

"People are so pissed off about this tax stuff, no one wants to participate," the head of one large trading desk told me this morning. "You're sacrificing intellectual capital for political capital."

This is not a program that can be allowed to fail. It is critical to several industries, particularly the auto and credit card industry.

Just look at Ford Credit; they could not sell pools of auto receivables for months. What does this mean? It means they have no liquidity; they are sitting on piles of auto receivables that they cannot securitize, which means they don't have money to provide new loans.

But they were able to sell a $2.954 billion bond deal backed by auto receivables, thanks to TALF funding. That is money Ford Credit has to make new loans.

In other words, the program works, if only someone will use it.

Another example: look at auto suppliers. Yesterday Treasury announced a program that would guarantee receivables (receivables are just money owed to the auto suppliers, mostly from the car companies).

What does this do? It protects them from Big 3 bankruptcies. More stability.

The program needs to get the political monkey off its back.

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