The New TALF: How's This for Irony?

by: John Jansen

The Federal Reserve and the Treasury are saying that the new TALF program will begin later this month.

In order for collateral to be eligible for financing under this program it must carry an imprimatur from (and this is beautiful bureaucratic lingo) ”a nationally recognized statistical rating organization”. I believe the FAQ pages say that the collateral will require the highest rating from two NRSROs to be eligible.

Take a gander at this excerpt from the FAQ:

Which rating agencies are considered major nationally recognized statistical rating organizations (NRSROs) for purposes of the TALF?

The major NRSROs for purposes of determining TALF-eligible ABS are Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s. The FRBNY will periodically review its use of NRSROs, for the purpose of determining TALF-eligible ABS.

The same ratings agencies which aided and abetted the initial debacle and which assisted in creating this financial calamity are now allowed to pass judgment on what is eligible collateral for this program that is intended to rescue the system.

That truly would be the application of an ironic imprimatur.