The US Federal Reserve today announced plans to pump up to $800 billion into the financial system in purchases of mortgage and asset-backed securities.
The new efforts come as part of a move to restart consumer credit markets that froze up in October and to get more liquidity and bring down borrowing costs for the housing market, which is at the centre of the economic storm.
The Fed said it would buy up to $100 billion of debt from government-sponsored mortgage enterprises Fannie Mae and Freddie Mac in the next week, and buy another $500 billion in a process which will start by the end of this year.
Separately, the Fed said it would launch a programme to buy up to $200 billion in asset-backed securities - investment products backed by student loans, car loans, credit card loans, and other loans - in a further effort to unclog frozen credit markets.
The US Treasury said it was allocating $20 billion to the asset-backed securities fund as 'credit protection'.
'The asset-backed securities market provides liquidity to financial institutions that provide small business loans and consumer lending such as auto loans, student loans, and credit cards,' Treasury said in a statement.
The statement noted that these securities amounted to $240 billion in 2007 but had dropped sharply in the third quarter of 2008 'before essentially coming to a halt in October', making it harder for consumers to get credit and threatening a seizing up of economic activity.
'Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of US economic activity,' the Fed said.
