Friday, February 27, 2009

Kasriel's Commentary Is Mildly Optimistic

This guy always produces readable stuff. And it's well-informed, insofar as he's with a major-player Midwestern bank. This is from his February letter.

...The Federal Reserve proposes through TALF to provide non-recourse financing to entities that purchase newly-issued securitized debt with a credit rating of AAA. The term of these loans would be three years. ...When TALF was first proposed, back in November of last year, its funding allocation was $200 billion. Under the Treasury’s new FSP [formerly called TARP], TALF’s funding amount has been increased to $1 trillion.

TALF expands the capacity for the Fed to, in effect, create credit for the private sector. We believe that TALF will be the most important element of the FSP to increase the flow of credit to the private sector in the coming 12 months

In other words, TALF is designed specifically to 'liquify' Banks, unlike TARP which seemed to be recapitalization-oriented. (Maybe "seemed" should be followed by a question mark; it remains unclear what the Hell TARP actually was for.)

Is Kasriel an optimist?

In sum, we believe that the nadir of this recession is occurring now. Moreover, we believe that the combination of the $1 trillion TALF program and the $787 billion fiscal stimulus program, assuming it is financed by the banking system and the Fed, will have a salutary effect on aggregate real activity, perhaps inducing an economic recovery by the fourth quarter of this year

Well, he hasn't changed his call for end-of-'09 recovery.

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