This is priceless. The Fed announced today that it was potentially expanding its balance sheet and the Term-Asset Backed Securities Loan Facility (TALF) to include toxic ("legacy") CMBS. The Fed hopes to jump start the CMBS market with this move.
On March 23, 2009, the Federal Reserve announced that it would evaluate extending the list of eligible collateral for TALF loans to include certain legacy securities. The objective of the expansion is to restart the market for legacy securities and, by doing so, stimulate the extension of new credit by helping to ease balance sheet pressures on banks and other financial institutions. Tuesday’s announcement marks the first addition of a legacy asset class to the list of eligible TALF collateral.
Federal Reserve Bank of New York will review and reject collateral that does not meet term sheet requirement or is otherwise poses an unacceptable risk. That is very comforting to know especially since FRBNY is owned by the financial conglomerates offering up the collateral. But here is the priceless part:
Eligible newly issued and legacy CMBS must have at least two triple-A ratings from DBRS, Fitch Ratings, Moody’s Investors Service, Realpoint, or Standard Poor’s and must not have a rating below triple-A from any of these rating agencies. More broadly, the Federal Reserve is formalizing procedures for determining the set of rating agencies whose ratings will be accepted for various types of eligible collateral in the Federal Reserve’s credit programs.
Wow, Fed is relying on the ratings of CMBS by rating agencies that have had a horrendous record and no credibility when it comes to rating such securities. This is another example of how the Fed and Treasury are trying to reconstruct the House of Cards. Nothing has changed.