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Fed To Give Credit Markets $800 Billion Jump-Start

Published November 25, 2008 at 5:58 AM PST

This story was published more than 16 years ago.

David Wessel of 'The Wall Street Journal' talks with Steve Inskeep on 'Morning Edition'

Treasury Secretary Henry Paulson briefs reporters Tuesday on the implementation of the Emergency Economic Stabilization Act at the Treasury Department in Washington, D.C.

Treasury Secretary Henry Paulson said Tuesday that new programs totaling $800 billion are designed to help stabilize the nation's financial system and support vital consumer spending.

Paulson said key markets for consumer debt, such as credit cards, auto loans and student loans, essentially came to a halt in October and that the new programs are aimed at getting lending back on track.

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Paulson said he and his regulatory colleagues are "committed to using all the tools at our disposal to preserve the strength of our financial institutions and stabilize our financial markets to minimize the spillover into the rest of the economy."

The Federal Reserve announced the massive deal to buy $600 billion worth of mortgage-backed assets and $200 billion in consumer debt securities Tuesday, as the government struggles to stabilize the economy amid an unprecedented financial crisis.

The central bank said it would buy up to $100 billion in direct obligations from Fannie Mae, Freddie Mac and the Federal Home Loan Banks, the government-sponsored mortgage finance enterprises. It said it would also purchase up to $500 billion in mortgage-backed securities — pools of mortgages that are bundled together and sold to investors.

"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the central bank said in a statement.

"Purchases of up to $500 billion in [mortgage-backed securities] will be conducted by asset managers selected via a competitive process, with a goal of beginning these purchases before year-end," the Fed stated.

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The central bank also launched a $200 billion facility to back consumer loans, including student, auto and credit card loans and loans backed by the federal Small Business Administration.

Paulson said the program is just a starting point: "It is going to take a while to get this program up and going, and then it can be increased over time."

From wire service reports