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New York Fed Adjusts TALF Guidelines, Promotes Rating Shopping

Tyler Durden's picture




 

The New York Fed, concerned about what happens when it can no longer monetize treasuries, has decided to adjust its TALF fall back plan which so far has seen virtually no use, compliments of a free-liquidity guzzling equity market. So Messrs Bill Dudley et al are taking appropriate steps for the next part of the move higher, and have just issued an announcement, changing the "procedures for evaluating asset-backed securities pledged to the TALF." The reason: to "enhance the Federal Reserve's ability to ensure that TALF collateral complies with its existing high standards for credit quality, transparency, and simplicity of structure." It is refreshing that the NY Fed actually cares about lending taxpayer money where the collateral will presumably cover losses, courtesy of the upcoming CRE crunch.

From the NY Fed:

First, the Federal Reserve Board announced that it has proposed a rule that would establish criteria for the Federal Reserve Bank of New York to determine the Nationally Recognized Statistical Rating Organizations (NRSROs) whose ratings are accepted for determining the eligibility of ABS to be pledged as collateral at the TALF. A Notice of Proposed Rulemaking, attached, will be published in the Federal Register for public comment. The proposed rule, which would require a certain minimum level of experience in rating deals of any particular type, would likely result in an expansion of TALF-eligible NRSROs for ABS. It is intended to promote competition among NRSROs and ensure appropriate protection against credit risk for the U.S. taxpayer.

Second, starting with the November subscription, in addition to continuing to require that collateral for TALF loans receive two triple-A ratings from TALF-eligible NRSROs, the Federal Reserve Bank of New York will conduct a formal risk assessment of all proposed collateral--ABS in addition to CMBS, which are already subject to a formal risk assessment. The change to the collateral review process will enhance the Federal Reserve's ability to ensure that TALF collateral complies with its existing high standards for credit quality, transparency, and simplicity of structure.

To facilitate the risk assessment, each issuer wishing to bring a TALF-eligible ABS transaction to market will be required to provide, at least three weeks prior to the subscription date, information including, but not limited to, all data on the transaction the issuer has provided to any NRSRO.

So in a nutshell the Fed will now promote rating shopping, and advance looks at ratable data so it can go back to the issuer and tell them what needs to be "adjusted" in order to get that ever prevalent AAA rating, the very same one that the legacy rating agencies had specialized in dispensing to anyone who would pay them $100,000 a pop, and brought the financial system to the brink of ruin.

 

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Mon, 10/05/2009 - 15:42 | 89100 AR
AR's picture

The U.S. Government sponsored PONZIE Scheme continues in full force. Finally, does anyone else out there have the same eerie feeling that we do about the market?  We can't help but remember the days and weeks leading up into October 1987.  Anyone else out there old enough to remember those days?  Today's markets feel closely similar to us...

Mon, 10/05/2009 - 16:21 | 89156 VegasBD
VegasBD's picture

Nope. In 87 my biggest worry was doing good in pop warner practice =)

Mon, 10/05/2009 - 15:46 | 89104 TumblingDice
TumblingDice's picture

the Federal Reserve Bank of New York will conduct a formal risk assessment of all proposed collateral

How reassuring, especially considering that they can create money out of thin air. So technically, to them, there is always no risk.

Mon, 10/05/2009 - 16:31 | 89174 ZerOhead
ZerOhead's picture

I was thinking... since they just 'imagine' this money into existance... why don't we just 'imagine' that we've already paid them back?

Mon, 10/05/2009 - 16:35 | 89179 ZerOhead
ZerOhead's picture

Or would Timmy and Benny get upset?

Mon, 10/05/2009 - 16:50 | 89197 TumblingDice
TumblingDice's picture

Not if we offer up some excellent collateral for out imaginative actions. I think my basketball signed by the whole wizards team (won it in a raffle and mostly used it to play an not store it in my trophy case, since the wizards suck and all)  should be enough to imagine my student loans away.

Mon, 10/05/2009 - 15:55 | 89110 Hondo
Hondo's picture

More insanity.  The NY Fed doesn't have the expertise to evaluate any credit bond.  I know they have been hiring like crazy but I still believe it's a scam by the Federal Government of massive proportions.  We already know that both the TSY and the FED lie to the market and public for their own benefit.  Buy this crap at your own risk......or if well connected enough to get bailed out.

 

 

Mon, 10/05/2009 - 16:03 | 89123 AN0NYM0US
AN0NYM0US's picture

meanwhile Barney wants to redirect TARP to help unemployed homeowners -  that would be a good Poll question - will what ever is left of TARP ever make it back from whence it came or will it morph into assorted Pork Cutlets

 

http://www.upi.com/Real-Estate/2009/10/05/Frank-Would-Use-TARP-Funds-for...

Mon, 10/05/2009 - 16:12 | 89143 lizzy36
lizzy36's picture

TARP is a  revolving credit line for congress. 

It will NEVER make it back to where it came from.

Mon, 10/05/2009 - 16:23 | 89158 deadhead
deadhead's picture

"...will what ever is left of TARP ever make it back from whence it came or will it morph into assorted Pork Cutlets"

I hope this is not a serious question.  Those phucks in Congress and the chicago gang in the shit house on pennsylvania avenue are just starting to spend money.  They are going to take down the USA in a blaze of orgiastic money printing. 

Mon, 10/05/2009 - 16:10 | 89140 MsCreant
MsCreant's picture

Confidence is high! Gold on a small tear.

Mon, 10/05/2009 - 16:29 | 89169 Gilgamesh
Gilgamesh's picture

Confidence that the Fed will act in perfect opposition to its charter...  Yes, that is quite high (good thing it can be traded - via gold).

Mon, 10/05/2009 - 16:26 | 89162 Assetman
Assetman's picture

This reminds me of the Progressive insurance commerical with that fake retail outlet where you can compare different premiums.

What not include the TALF/NRSROs in the comparison?  You can by the damn stuff in a box and talk to Flo about "power to the people" at the same time.  Talk about lowering your standards....

Mon, 10/05/2009 - 16:35 | 89182 Gilgamesh
Gilgamesh's picture

Incoming MGM post from TD.  Checking back often!

Mon, 10/05/2009 - 18:05 | 89273 DaddyWarbucks
DaddyWarbucks's picture

"The reason: to "enhance the Federal Reserve's ability to ensure that TALF collateral complies with its existing high standards for credit quality, transparency, and simplicity of structure."

Is it just me or does that sound like an admision that, up until now, the collateral hasn't been complying with the "high" standards?

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