Government Guarantees
In order to help stabilize asset prices and assuage fears of a financial system meltdown, various government agencies have used asset price guarantees. These programs, meant to secure loans and other public and private assets, include the FDIC Temporary Liquidity Guarantee Program (TLGP), under which the FDIC guarantees unsecured new loans issued by banks, thrifts, and selected holding companies, and the Temporary Corporate Credit Union Liquidity Guarantee Program, which guarantees debt obligations for eligible corporate credit unions.
Also included are a number of other guarantees. The public-private investment fund is made up of the legacy loan program, which uses public financing (via TARP) to help private entities purchase pools of bank loan assets, and the legacy securities program, which will designate five asset managers and employ these managers to raise private capital, buy legacy securities, and expand Term Asset Backed Securities Lending Facility (TALF). The Federal Reserve and FDIC have both set up plans to guarantee the assets of Citigroup and Bank of America, requiring the companies to absorb an initial cost and then splitting the remaining losses 10:90 with the federal government. Other provisions include the guarantees of student loans, corporate credit union shares, money market accounts, and small business loans.
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