Fed Takes Out the Trash

The guys who brought us the magic of the deregulated mortgage market are finding new and creative ways to make amends. The plan announced today by the Fed was ambitious enough to coax very a large gain out of the market and has the cutsey name Term Securities Lending Facility. The Fed is basically allowing large financial institutions to borrow liquidity (cash or safe Treasuries) and use the mortgage backed securities that have led to the liquidity woes as collateral. My favorite twist on the proposed credit line is this, any securities that hve a premium rating will be accepted as collateral.

This is of course is meaningless since many of the "premium" credit ratings were assigned with a wink from S&P and Moody's to the future detriment of investors. At this point in the game the mere act of accepting this garbage as collateral is soothing enough to the calm everyones' nerves for the time being.

The Fed is going to lend up to $200 billion as of his program. It would be nice to think the same helping hand may soon be extended to local government issuers who have been stung by the collapse of the auction rate securities market. A collapse brought on by the aforementioned players now on the receiving end of the Fed's generosity. For more information on that mess check out Mayor Bloomberg's little financial news site.