Wednesday, November 26, 2008

US Governmental Bailout Glossary

If you have been like me, than you've tried to follow our mercurial capital markets and the US governmental responses these past few months with increasing confusion. It's hard to imagine a better illustration of what uncertainly feels like except for us going into a world war. It is now clear that we need a score card to track all the acronyms and activities. Below is my attempt to summarize the US governmental programs thus far. I shall endeavour to update this post as new programs are announced. Please feel free to leave comments with additional details which may help fellow market watchers.

US Treasury Program

TARP/CPP (Troubled Asset Relief Program/Capital Purchase Program)
Approved 10/3/2008 as part of the EESA.
A $700 billions flexible program which initially targeted purchase of distressed MBS/ABSs. That has been replaced by direct investment into preferred shares and warrants of banks .

Federal Reserve Programs

TAF (Term Auction Facility)
Initated 12/17/2007, this facility makes low interest loans for 28 or 84 days to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window.

AMLF ( ABCP MMMF Liquidity Facility )
Began 9/19/2008, the AMLF finances the purchases of ABCP by banking organizations with loans from the Federal Reserve Bank of Boston at the primary credit rate. The loans are collateralized by the ABCP but are without recourse to the borrowing banking organization. Currently set to expire in January 2009.

MMIFF (Money Market Investor Funding Facility)
Announced 10/21/2008, the Fed will finance up to $540 bn purchase of CD, bank notes and CP up to 90 days maturity by SPV from 50 financial institutions.

CPFF (Commercial Paper Funding Facility)
Operational since 10/27/2008, the CPFF provides a liquidity backstop to U.S. issuers of commercial paper. The CPFF is intended to improve liquidity in short-term funding markets and thereby contribute to greater availability of credit for businesses and households. Under the CPFF, the Federal Reserve Bank of New York will finance the purchase of highly-rated unsecured and asset-backed commercial paper from eligible issuers via eligible primary dealers.

(To Be Determined)
The Federal Reserve announced on 11/25 that it would buy up to $500 billion in agency mortgage-backed assets from the government-sponsored mortgage finance giants
The agency would also buy up to $100 billion in debt directly/via auction from the GSEs above and the FHLB.
"Purchases of up to $100 billion in GSE direct obligations under the program will be conducted with the Federal Reserve's primary dealers through a series of competitive auctions and will begin next week. Purchases of up to $500 billion in MBS will be conducted by asset managers selected via a competitive process with a goal of beginning these purchases before year-end."
The average rate for a 30-year fixed mortgage fell to about 5.5 percent after starting at 6.38 percent yesterday

TALF (Term Asset-Backed Securities Loan Facility)
Announced 11/25.
The Fed would make 1 year loans totaling up to $200 billion on a nonrecourse basis to holders of asset-backed securities supported by car loans, credit card loans, student loans, and business loans guaranteed by the Small Business Administration. US Treasury will use $20 billion from TARP to seed this program.


FDIC Program

Temporary Liquidity Guarantee Program (TLGP)
"The Program guarantees newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and provides full coverage of non-interest bearing deposit transaction accounts."
"The goal of the TLGP is to decrease the cost of bank funding so that bank lending to consumers and businesses will normalize."
This insurance costs is on a sliding scale. "Shorter-term debt will have a lower fee structure and longer-term debt will have a higher fee. The range will be 50 basis points on debt of 180 days or less, and a maximum of 100 basis points for debt with maturities of one year or longer, on an annualized basis."
Goldman was the first to sell $5bn new debt under the guarantee of this program on 11/24.

General Terms

Asset Backed Commercial Paper (ABCP)
EESA (Emergency Economic Stabilization Act)
Money Market Mutual Fund (MMMF)
GSE (Government Sponsored Enterprise) Includes: Fannie Mae, Freddie Mac, Ginnie Mae.
SPV (Special Purpose Vehicle)
 
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