Fed launches $200 billion credit program

The government launched a much-awaited program Tuesday to spur lending for autos, education, credit cards and other consumer loans.

By providing up to $200 billion in financing to investors to buy up debt, the Federal Reserve hopes to break the logjam in credit and spark economic growth, Federal Reserve Chairman Ben Bernanke told Congress.

The Fed hopes to free up $1 trillion in lending for companies and consumers at a moment when the economy has been shrinking: American payrolls have shrunk by 3.6 million jobs since the recession started in December 2007.

With renewed lending, the government hopes for consumer spending to bounce back and businesses to expand.

But skeptics have raised questions about the plan: Will companies hire if they don’t think there is growing demand for what they sell? Will easier credit lure debt-burdened Americans back to borrowing? And should the government even be encouraging that move? And will the plan work?

Economists differ on the means, but most economists agree that the financial system must be fixed: The credit crunch has made it much harder for people to obtain financing, and those who do can be burdened with high rates.

Anil Kashyap, a professor at the University of Chicago’s Booth School of Business, said the program should make it easier for consumers to get loans.

But he cautioned that the Fed’s involvement could make other debt securities less attractive. “We’d really rather the credit markets just work properly,” Kashyap said.

The Fed unveiled TALF —- short for Term Asset-Backed Securities Loan Facility —- late last year. Plans announced Tuesday call for participants —- companies and investors that pledge eligible collateral to back the loans —- to ask for the new government financing by March 17 and for the Fed to provide it March 25.

“We should see immediate benefits to students, to credit cards, to small businesses, to consumer loans,” Bernanke told lawmakers.

Much of the Fed’s focus has been on lubricating the loan-maker machinery. But the crisis was triggered by the realization that many bundled-up home loans included so much delinquent debt that the packages were “toxic.”

If not managed well, this new program flirts with the same poison, warned economist Tim Duy of the University of Oregon. “To what extent are you encouraging the poor securitization that got us to where we are at now?”

The Fed may also be wrong in its conviction that it can set a short deadline on jump-starting credit, Duy said. “The deeper the Fed gets in, the harder it will be to walk away.

Atlanta Journal-Constitution staff writer Michael E. Kanell and The Associated Press contributed to this article.