Federal Reserve To The Rescue - TALF

Today the government announced the game plan for the economy. The total amount being thrown around was a staggering $3 Trillion. About $1 Trillion each for Treasury, Federal Reserve, and Legislative branch.

Treasury: Separately, Treasury Secretary Timothy Geithner outlined plans for spending much of the $350 billion in financial bailout money recently cleared by Congress. (TARP)

Federal Reserve: It announced it would commit up to $1 trillion to make loans more widely available to consumers. (TALF)

Legislative: The vote was 61-37 in the Senate to pass the stimulus, with moderate Republican Sens. Susan Collins and Olympia Snowe of Maine and Arlen Specter of Pennsylvania joining Democrats in support. The total was $830 Billion.

Treasury: One element of the administration's approach calls for using as much as $100 billion in federal bailout funds to give banks, hedge funds or other investors the incentive to purchase so-called toxic assets carried on the books of other financial institutions. The goal is to return struggling banks to health so they can resume making loans, and an administration fact sheet said the amount of government and private funds combined will be "on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion."

Federal Reserve: The Federal Reserve announced it would commit up to $1 trillion to purchase bonds or other assets backed by consumer loans. The Treasury will guarantee a portion of the Fed investment by putting up $100 billion, an increase from a $20 billion commitment that Bush administration had announced.

Of all of the news, having the Fed announce a commitment of $1 Trillion in the TALF program to back consumer loans was the best. This will have the greatest impact in creating growth. While the news from the Treasury and the Legislative branch makes good headlines, it will not be as effective.

The stock market had a big drop today which was supposedly related to a lack of clarity by the Treasury. While this makes headlines and lots of press coverage it makes little difference to a long term investor.