The Term Asset-Backed Securities Loan Facility (TALF) deadline has been extended. This doesn't sound good but you can be the judge:
Today, the Fed delayed by two days the March 17 deadline for submissions of proposed packages of debt that investors can buy with Fed financing. No agreements have been announced yet for proposed securities. Brokers and investors have had difficulty agreeing over contract terms for the Term Asset-Backed Securities Loan Facility, the people said.
After reading the article, I thought to myself is there an interest in or demand for such a facility present. Secretary Geithner is counting on TALF to unfreeze the credit markets. Look, I want to see him succeed and I hope I am wrong. But something tells me we should be focusing like a laser beam on the issue of solvency and dedicate our very limited resources to addressing this issue.
TALF would finance AAA rated securities containing loans for autos, education, credit cards and small businesses. Sure this very important provide liquidity this these markets but liquidity is not problem. Credit markets remain frozen because of issues of solvency, confidence and trust.
We learned yesterday that household net worth fell the largest amount in fifty years. Today, there is a story that collateralized loan obligations (CLOs) are experiencing record losses because of businesses defaults and bankruptcies. TALF is not going to help this situation. Funny, they are considering using TALF to bailout the CLO market.
Unfortunately, we may not have even seen the bottom of the mortgage crisis and credit card crisis is right behind that. There are a lot of mortgages that are due to reset within the next year. These mortgages and the credit cards have been securitized somewhere and they are still in the system.
I want to be optimistic. Unfortunately, I don't think we are addressing the issue of insolvency head on particularly as it pertains to the zombie banks (despite their rose short-term profit statements). These zombie banks have hundreds of billions of toxic stuff still on their books and we have yet to reach bottom with the mortgage crisis and credit card crisis is right behind that.
We should declare them dead, liquidate and recapitalize and move on.