When TALF displaces TARP

By Felix Salmon
July 14, 2009

Dealbook is making a big deal out of the fact that Chrysler Financial has repaid its TARP loan. But read down to the bottom of the press release, and you find this:

Funds used to make the repayment of TARP were obtained through the completion of a AAA-rated automotive asset-backed securitization (ABS) through the Term Asset-Backed Securities Loan Facility (TALF).

So, yay, the government got its TARP money back. Because some other arm of the government (the Fed) was willing to lend the same amount of money even cheaper, through TALF. This is an improvement how?


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As I understand TALF, the funds from the Fed are advanced to the purchasers of the security not to the securitizer. In this case Chrysler did not receive TALF funds, those who bought the ABS from it did.

It seems that Chrysler did what we want companies to do. It sold cars, financed them and then securitized those receivables. Unfortunately, the credit markets aren’t sufficiently recovered (or so we’re told) to provide the leverage needed to make these transactions feasible so the Fed is still stepping in and providing the funds.

Net, net we’re better off. We got our equity back and are now just on the hook for a well collateralized loan. That is some progress.

You are on the hook for a well collateralized NON-RECOURSE loan with TARP money providing credit protection to the Fed. The TALF money passes through the purchasers of the security and ends up with Chrysler Financial. Fact: Chrysler couldn’t have paid back the TARP money without the TALF, it’s pure arbitrage, they are saving big bucks arbing 2 government programs.

I fail to understand how any security backed by automotive loans could be rated AAA. We all know Chrysler chased volume by having less-than-stellar customers financing through Chrysler Financial. The 0% interest for 72 month terms or the subvented leases to hit a 50% 3 year depreciation number seem to be very risky assets.

Does the TALF make up the difference to turn the junk-grade Chrysler automotive-asset-backed securities into AAA? Does TALF protect the owner of these securities from any loss if any of the customers in the underlying automotive contracts go into default on their car payments?

Posted by John | Report as abusive

@John: Take a look at the borrowers in this deal (http://investor.chryslerfinancial.com/s ecuritization/retail/transactions/cfast- 09a.pdf). The pool is phenomenal. And there are no leases – only loans.

@jck: Do you know how many of the investors actually used TALF funds? I understand that a lot of other deals are getting done with mostly cash buyers.

Posted by ab | Report as abusive

TALF is about 68% of U.S. ABS issuance year to date, itself running at half last level.

Thanks jck. I guess the question is whether the taxpayers would rather have $1.5bn in preferred equity in Chrysler Financial or finance (at 92-94c on the dollar) $1.3bn in AAA-rated ABS.

Also, I guess we’re getting paid much less on it (Swaps+1 vs 5%).

Posted by ab | Report as abusive

Chrysler Financial paid back its TARP loan that placed earning restrictions on top executives with another government-based loan (TALF); it’s corporate welfare no matter how anyone looks at it. What the government should do is audit Chrysler Financial to determine whether the $1.5 billion TARP dollars were actually used for the intended purpose– to fund 85,000 consumer loans for the purchase of Chrysler vehicles. Who purchased 85,000 Chrysler vehicles from January through April of 2009? Chrysler Financial should be forced to name these consumers. Finally, if 85,000 consumers purchsed Chrysler vehicles, why did the company declare bankruptcy?

Cerberus and the government should allow our capitalist system to work and permit Chrysler Financial to go belly-up!!!!!

Posted by Researcher | Report as abusive