Fed Throws Fresh Lifeline to Financial System
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WASHINGTON
(Reuters) - The Federal Reserve threw a massive life-line to consumers
on Tuesday with two new programs aimed at making it easier for them to
obtain loans for homes, cars and on credit cards.
Under the new mortgage program, the Fed will buy up to $100 billion
of debt issued by government-sponsored mortgage enterprises Fannie Mae,
Freddie Mac and the Federal Home Loan Banks. It will also buy up to
$500 billion of mortgage securities backed by Fannie Mae, Freddie Mac,
and Ginnie Mae.
The central bank also launched a $200 billion facility to support
consumer finance, including student, auto, and credit card loans and
loans backed by the federal Small Business Administration. This will
lend to investors who hold securities backed by this debt.
The launch of the two programs lifted investor spirits and drove up
the blue chip Dow Jones industrial average more than 100 points, or
about 1.3 percent, within minutes of its open.
"One of the big problems we have is that there has been a lack of
demand for debt. You have seen the market for securitized debt such as
credit cards or student loans dry up completely," said Scott Brown,
chief economist at Raymond James & Associates in St. Petersburg,
Florida.
"Here is the Fed taking a bunch of debt out of the market," he said. "It should help unblock the credit markets."
The new mortgage-support facility was intended to strike at the
collapsed housing market, the core of the United States' economic woes.
"This action is being taken to reduce the cost and increase the
availability of credit for the purchase of houses, which in turn should
support housing markets and foster improved financial conditions more
generally," the Fed said.
Investor appetite for both the debt issued by Fannie Mae and Freddie
Mac and the mortgage-backed securities they guarantee has dried up
since the government seized the companies in September, and the Fed
hopes to fill that void.
Government 
