The Never-ending Bailout

The Federal Reserve announced yesterday two new programs to fight the financial crisis by increasing lending to consumers and small businesses and supporting the market for mortgage-backed securities. The Fed will buy up to $600 billion of mortgage-backed securities from Fannie Mae and Freddie Mac, in order to boost the availability of credit for purchasing houses. This means the Fed is directly subsidizing lower mortgage rates, as opposed to tinkering with them indirectly via interest rates. The Fed and the Treasury will also lend $200 billion to holders of assets backed by car, credit card, student, and small business loans. According to Henry Paulson, “It gives institutions liquidity and it’s clearly direct lending that will help consumers.”