Treasury Secretary Henry Paulson announced a program to allocate $20 billion to back a $200 billion Federal Reserve facility for consumer lending.
The money will be used for the asset-backed securities market to provide liquidity to financial institutions and loosen the tight market for automobile and student loans, credit cards and small business loans. Issuances in these categories amounted to roughly $240 billion in 2007 but declined precipitously in the third quarter of 2008 before coming to a halt in October, according to the Treasury Department.
"Millions of Americans cannot find affordable financing for their basic credit needs," said Treasury Secretary Henry Paulson (pictured). "And credit card rates are climbing, making it more expensive for families to finance everyday purchases. This lack of affordable consumer credit undermines consumer spending and as a result weakens our economy."
Retailers are especially worried this holiday season about the economic downturn causing a precipitous drop in consumer spending. Many retailers have already reported a severe slowdown in sales, forcing some into bankruptcy.
The $20 billion is expected to come out of the $700 billion Troubled Asset Relief Program that Congress approved in October as part of the Emergency Economic Stabilization Act. The Federal Reserve also announced plans to purchase up to $600 billion in direct debt obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, and mortgage-backed securities guaranteed by Fannie, Freddie and Ginnie Mae. "Nothing is more important to getting through this housing correction than the availability of affordable mortgage finance," said Paulson.
Separately, President-elect Barack Obama named two more members of his economic team. Peter Orszag will become director of the Office of Management and Budget and Robert Nabors will be his deputy. Orszag is currently director of the Congressional Budget Office and Nabors is the top staff aide on the House Appropriations Committee.
In naming the new budget chiefs, Obama emphasized that he planned to carefully exercise control over the ballooning federal budget. "Budget reform is not an option, it's a necessity," he said.
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