A $200 Billion Credit-Crunch Buster?

The federal government on Mar. 3 provided some long-awaited answers on how it plans to unlock consumer and small business credit markets, which have been frozen more solid than an icy tundra.

The $200 billion joint Federal Reserve Board and U.S. Treasury program, known as the Term Asset-Backed Securities Loan Facility, or TALF, is intended to get money flowing for small employers, student-loan providers, credit-card issuers, and auto lenders.

TALF was first announced late last year, but with only hazy parameters and few details. Whereas the better-known Troubled Asset Relief Program, or TARP, was created to bail out banks, TALF's purpose is to induce investors to buy up AAA-rated securities backed by new consumer and small business loans by offering $200 billion in low-interest loans to would-be investors. The idea is that these securities will spur enough investor interest to eventually generate up to $1 trillion of lending.

Since last year, the credit markets have been essentially at a standstill with no new investors willing to purchase securities backed by consumer loans.

Requests for loans—which have to meet certain terms and conditions—will be accepted starting Mar. 17, and funds will start being dispersed later in the month. The program will run through December, but could be extended. The $200 billion of Fed backing could also be increased if needed