When only $1.7 billion in Talf (term asset-backed securities loan facility) loans were issued in April’s opening for funding, it provided critics of the US government’s attempts at solving the financial crisis with yet more ammunition. But are such negative perceptions of the programme warranted? Talf has, opposed perhaps to other acronymic programmes, been well-thought-out, with the end consumer in mind, rather than the banks. Investors are keen to participate but issuers who tend to be cautious in their borrowing are understandably nervous.
Perhaps most damaging to its success has been the proposal of the PPIP (public private investment programme) which essentially plans to offload banks’ toxic assets on to the private sector. It is difficult to find investors that believe the PPIP will work, and with good reason. It is in the banks’ interest to make sure they get a good price for the assets but it is the investors’ interest to obtain a low price. Just where this price should be is impossible to tell and there are hints that banks are already trying to manipulate prices of their toxic asset portfolios in an upward direction.
The mismatch of interests makes it tough for the plan to get under way, and by introducing proposals at the same time as launching Talf, there is confusion as to where Talf ends and where PPIP might begin.