US authorities have launched fresh efforts to unfreeze credit and limit the economic downturn with programs to buy up to $800bn in mortgage- and asset-backed securities.
The initiatives call for the Federal Reserve to buy up to $600bn in mortgage securities, with another $200bn allocated for asset-backed securities to help get credit to consumers.
'Throughout this financial market turmoil, our focus has been to stabilise the system and support the lending that is vital to our economy,' Treasury Secretary Henry Paulson said.
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 US central bank said it would launch purchases of up to $100bn of obligations of housing-related government-sponsored enterprises including Fannie Mae and Freddie Mac in the next week, and buy another $500bn in a process started by the end of this year.
Separately, the Fed said it would launch a program to buy up to $200bn in asset-backed securities - backed by student loans, auto loans, credit card loans, and other loans - in a further effort to unclog frozen credit markets.
The US Treasury said it was allocating $20bn to the asset-backed securities fund as 'credit protection.'
The Fed will lend up to $200bn to holders of AAA-rated asset-backed securities for a term of at least one year.
The Fed said the action on mortgage securities 'is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.'
