ML-Implode News - U.S. Weighs Fed Program to Loosen Lending

The Term Asset-backed Securities Loan Facility, or TALF, was announced in November after investors stopped buying securities backed by consumer debt. Under the $200 billion program, the Fed will make loans to almost any U.S. firm that is willing to use the government financing to buy securities tied to credit-card, small-business, student and auto loans.

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Some hedge funds, which often use borrowed money to boost returns, are lining up to get in on the Fed program, seeing a chance to make high double-digit-percentage returns with little downside using low-cost loans made on easy terms. Some officials inside the Fed are nervous about relying on unregulated hedge funds. But they see it as a trade-off in order to get capital to consumers.

Call us heretical, but why doesn't the government just establish its own direct-to-consumers loan programs to cut out the middle-men?

Of course, hedge funds, being shrewd, are lining up to get their nearly-risk-free double digit returns from a government that's too lazy to make direct loans (or prefers the superficial appearance of not being involved).

Some of the largest names in the hedge-fund world have showed initial interest in the Fed-lending program.

Among funds that bankers and investors have spoken to about the TALF are Magnetar Capital LLC, a multibillion-dollar Evanston, Ill., fund, which made bets during the housing boom that paid off when mortgage defaults rose. Magnetar also helped to fuel issuance of complex debt instruments known as collateralized debt obligations. Magnetar said it isn't in a position to make a decision given the information available about the program.

Bankers and investors said they have spoken to several funds that may be intrigued by the program, including Citadel Investment Group LLC, and D.E. Shaw & Co., among many others. D.E. Shaw declined to comment.

Traditional money managers, including Pacific Investment Management Co., BlackRock Inc. and Prudential Financial Inc. also have been gearing up for the program. BlackRock said it is interested in the program. Pimco didn't respond to a request for comment.

Relevant:

U.S. Weighs Fed Program to Loosen Lending