Fed, Treasury announce fresh lending programme

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From Fazle Rashid
NEW YORK, Nov 25: Federal Reserve and the Treasury Department announced a fresh lending programme Tuesday to restore confidence in the financial market and to unlock the frozen loan markets.
The government introduced a pair of new programmes Tuesday that will provide $800 billion to help unfreeze the market for consumer debt and to make mortgage loans cheaper and more available.
The new programmes from the Federal Reserve and Treasury Department are the latest effort to provides billions in government support to get the US financial system back to more normal operations and keep the country from sliding into a deep and prolonged recession.
The programme, in effect, would create a government bank to finance hundreds of billions of dollars in commercial debt like car loans, student loans and business leases. The Treasury has to contribute $10 to $20 billion in seed capital, the New York Times (NYT) in a report said today.
The Bush administration is working in close collaboration with the transition team of President-elect Obama. President Bush said his successor would be informed of all major decisions, adding: "It is important for the American people to know that there is close cooperation."
President-elect Barack Hossain Obama, who has already named his economic team assured Americans that his stimulus package would be as big as necessary to shore up the economy and lay the foundation for renewed growth. The outlay is as big as $700 billion.
Meanwhile, Citigroup which has been provided with a cash infusion of $20 billion has lots of strings attached to it. The cash infusion had a salubrious effect on the stock market around the world. But the government has brought under its control Citi executives compensation plan. The government has also put a limit to payment of dividend which cannot exceed more than one per cent for next three years
The analysts said the Citigroup has been stabilised but the outlook for the financial industry as a whole remains bleak. The other banks in trouble would soon look upto government to ' soak up some of their losses' as it was done in case of Citigroup.
John McCain, the vanquished presidential hopeful once during his campaign had said: "There is no doubt that we have been living beyond our means and we are going to have to make some adjustments". He went on to propose an across the board spending freeze. President-elect Obama in line with what John Mccain had said indicated he would identify some savings and cutbacks. He is envisaging a sustainable long term financial situation.
Obama administration would scour the federal budget line by line and make meaningful cuts and sacrifices. There will be reforms of the federal budget. One lesson may be that it is perilous for the government to even hint that it thinks it is through bailing. That can renew fears about driving down share prices and forcing the government to do the opposite.