Hedge Funds Gain Access to Government Loans as Fed Expands the TALF

Hedge funds find themselves in new territory under a plan by the Federal Reserve to boost lender liquidity.  The Fed created a new $200 billion lending facility, called the Term Asset-Backed Securities Loan Facility (TALF), which offers low-cost, three-year financing to a wide range of US banks and investors for the purchase of securities backed by consumer loans, beginning in February 2009.  Notably, domestic (though probably not offshore) hedge funds would be eligible to participate in the program, allowing them to borrow from the Federal Reserve, something hedge funds have not been able to do in the past.  We describe the mechanics of the program and how hedge funds may be able to participate, and explore the benefits and burdens of participation.

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