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money-webRISMEDIA, March 10, 2009-(MCT)-It’s coming. But will it help? The long-awaited federal program to try to get up to $1 trillion in loans flowing into the hands of consumers and small businesses is ready to be launched March 17, but it has taken so long in coming that some analysts wonder if it will be the boon for the economy that many envisioned. The Term Asset-Backed Securities Loan Facility, known as TALF, is aimed at providing money for loans to people for cars, college, credit cards and small businesses.

But since it was first discussed by the Federal Reserve and Treasury last year, the economy has taken a sharp turn for the worse. Now with people losing jobs, or fearing they might lose jobs, they may be reluctant to borrow for big purchases, even if the federal program helps to make relatively low-cost loans available.

“The TALF is going to help,” said Ed Yardeni, president and chief investment strategist of Yardeni Research, but he wonders if consumers are so weakened that the TALF will end up looking like a solution to last year’s problems.

In the months that have passed since rescue plans were conjured up, the situation has moved from a credit crisis to an economy disabled by the after-effects of that crisis.

As businesses have had trouble obtaining loans and consumers found it difficult to borrow, purchases by companies and individuals slowed considerably. And as businesses struggled to make a profit, they cut back. Hundreds of thousands of people lost their jobs.

“We are in an adverse feedback loop, and it’s very dangerous,” Yardeni said.

Consumers were transformed from spenders to savers. After a long stretch of low or even negative saving rates, the most recent figures show the personal savings rate at 5%, the highest since 1995.

“Spending has been directed toward necessities such as home heating and at-home meals rather than restaurants,” said Merrill Lynch economist Sheryl King. “Discretionary purchases such as clothing, autos and vacations … continued to contract.”

The hope, of course, is that the TALF and other stimulus will give some consumers the ability to buy more. Even if some hold their cash tight, more spending overall could give the economy a lift.

“We will see soon,” Yardeni said. “Auto loans will be more available, so we will see if car sales rebound. It may be that banks might be more willing to lend, and it won’t do a lot.”

The TALF is intended to give a rebirth to the system that previously provided about $15 trillion in credit, for everything from mortgages to cars. It’s called securitization, the bundling together of loans and then selling parts as bonds to investors.

That form of providing loan money is dead because investors have been afraid to touch the bonds Wall Street created. That’s why the Federal Reserve and Treasury have stepped in.

Miller Tabak & Co. bond strategist Tony Crescenzi said this could be a turning point for the economy because the old securitization system would be restarted. Others, however, said the system is not yet in place to generate lending.

The key is to give investors a clear look inside the assets that have been securitized-both new ones and the old ones that are clogging bank finances, said Richard Field, managing director of structured finance firm TYI LLC.

Instead, the assets are so difficult to analyze, investors have been shunning them. If they were “transparent rather than opaque,” he said, the government would not have to try to lure investors through the TALF program.

© 2009, Chicago Tribune.
Distributed by McClatchy-Tribune Information Services.