The government has been launching stimulus programs, financial entities and other programs designed to lead us out of recession nearly as fast as lawmakers and bureaucrats can come up with acronyms. As soon as the media begins to tout a new one, there's another on its heels. (For a comprehensive review of the current crisis, refer to The 2007-2008 Financial Crisis In Review.)

It all began in December of 2007, when the United States Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank (ECB) and the Swiss National Bank took coordinated action to address the developing credit crisis. More than two years later, the bailout efforts continue. The primary flavors of the alphabet soup in the United States include:

  • TAF
    The Term Auction Facility was launched on December 12, 2007. It permitted banks to use securities as collateral to take short-term loans from the federal government for periods of either 28 or 84 days. In the Fed's words, TAF is a "
    credit facility that allows a depository institution to place a bid for an advance from its local Federal Reserve Bank at an interest rate that is determined as the result of an auction." The first auction took place on December 17.

  • TSLF
    The Term Securities Lending Facility was launched on March 11, 2008. Like TAF, which made credit available to "depository institutions," TSFL made $200 billion in credit available to other financial institutions (brokerage firms and other entities such as
    Fannie Mae, Freddie Mac, Citigroup, Countrywide Financial) for 28-day periods as opposed to the traditional overnight loans. These entities use securities as collateral to borrow money. Weekly auctions began on March 27, 2008.

  • PDCF
    On March 17, 2008, the Federal Reserve announced the creation of the
    Primary Dealer Credit Facility. Unlike TAF and TSLF, which were designed to address long-term funding needs, PDCF provides daily access to cash to the same entities that borrow from TAF and TSLF. The institutions pay an interest rate equal to the Fed's primary credit rate for short-term (overnight) loans. (Learn more in Top 6 U.S. Government Financial Bailouts.)

  • AMLF
    In September, 2008, the Federal Reserve Board announced the creation of the
    Asset-Backed Commercial Paper Money Market Fund Liquidity Facility, which loans money to banks and bank holding companies to help them meet redemptions in money market funds. They do this by lending funds to borrowers to purchase eligible ABCP's from the money market fund. Because the market for commercial paper dried up, the government feared that investors would be unable to redeem their assets from money-market funds. This could have been a major financial meltdown, as money-market funds have been touted as cash-like, safe investments.

  • TARP
    While previous programs were designed to thaw the frozen credit markets, the serious attempts at economic salvation really started with the Troubled Assets Relief Program. TARP, also known as "the bailout," entered the world on October 3, 2008. It was $700 billion program conceived in response to financial institutions struggling under the weight of sub-prime loan defaults. The greed-driven lenders gave money to foolish borrowers that were obviously unable to repay it, so the government agreed to use tax-payer money to take the bad loans off of the lenders books in order to thaw the credit markets. (Learn more about the meltdown in The Fall Of The Market In The Fall Of 2008.)

  • TALF
    TALF came next. In March of 2009, the Term Asset-Backed Securities Lending Facility, or bailout number two, tossed $
    200 billion more into the bailout pool by printing new money. The government launched TALF after the asset-backed securities (ABS) market froze over in October, causing consumers and small business owners to be unable to access credit.

    TALF was supposed to "help market participants meet the credit needs of households and small businesses by supporting the issuance of ABS collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA)." This effort also wasn't enough.

  • FSP
    Bailout number three, the Financial Stabilization Plan, grew TALF to a trillion dollars. It also permits commercial-mortgage backed securities (CMBS) to be used as collateral.

  • CPFF
    Commercial Paper Funding Facility c
    ame along in October of 2008, as commercial paper fell victim to illiquid credit markets. It was designed to provide a market for commercial paper by purchasing commercial paper from eligible issuers. The facility would use a special purpose vehicle (SPV) to buy and hold these commercial paper to maturity and use the proceeds at maturity to repay the funds they borrowed from the Fed.

  • PPIP
    The Public-Private Investment Program, rolled out in March 2009, was created to buy bad assets in order to get them off of banks' books. It was funded with a combination of TARP money and money from private investors. The program's main purpose was to provide price discovery in the market for toxic assets and to remove these assets from the balance sheets of financial institutions.

When Will the Madness End?
The long, complicated saga can be summarized as the result of a consumption-crazed society willing to borrow more than it can afford to repay from lenders that were all too willing to dole out the cash in the name of ever-increasing profits. After the loans were made, they were packed into structured products and sold to investors who didn't understand what they were buying and didn't want to as long as the investments generated hefty returns. When the borrowers failed to repay the loans, the fancy investments fell apart, leaving the taxpayers to fund the cleanup. (Find out more in Who Is To Blame For The Subprime Crisis? and Collateralized Debt Obligations: From Boon To Burden.)

The increasingly complex array of structured products form an alphabet soup of their own:

Lessons Learned
While the alphabet soup of investments and programs designed to clean up after them is a deep and messy brew, the lessons from the debacle are far clearer and apply to lenders, borrowers, businesses and individuals alike, include those that created the mess and those that got caught up in it. First, don't lend or borrow more that you can afford to repay, and second, don't buy or sell anything that you don't understand. (For more on what caused the credit crisis, read The Fuel That Fed The Subprime Meltdown.)

Related Articles
  1. Investing

    Why Is Financial Literacy and Education so Important?

    Financial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
  2. Economics

    Should the Fed Be More Worried About Asset Bubbles?

    While the Fed should be concerned that assets bubbles might impact economic stability, monetary policy is not the best tool to mitigate this threat.
  3. Investing

    Which GOP Candidate Brings What to the Table?

    What are the major GOP presidential candidates' economic plans and how do they differ?
  4. Professionals

    10 Must Watch Documentaries For Finance Professionals

    Find out about some of the best documentaries that finance professionals can watch to gain a better understanding of their industry.
  5. Economics

    What's Economic Capital?

    While regulatory and economic capital use some of the same measurements of risk to determine how much capital a firm should hold in reserve, economic capital uses more realistic measures.
  6. Economics

    What is Economic Rent?

    Economic rent typically occurs when a product, service or property is in short supply, but demand is high.
  7. Economics

    What's the 1913 Federal Reserve Act?

    The 1913 Federal Reserve Act was a pivotal congressional act that helped establish the Federal Reserve System as it exists today. It is one of the United States financial system’s most influential ...
  8. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  9. Economics

    Open Market Operations vs. Quantitative Easing

    How does the Fed's implementation of Quantitative Easing differ from its more conventional open market operations?
  10. Professionals

    Will Interest Rates Rise at the Next Fed Meeting?

    Everyone wants to know what the Federal Reserve will do next, but the Fed doesn't even know what it's next move will be.
  1. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>
  2. Who decides when to print money in the US?

    The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal ... Read Full Answer >>
  3. Why do some people claim the Federal Reserve is unconstitutional?

    The U.S. Constitution does not mention the need for a central bank, nor does it explicitly grant the government the power ... Read Full Answer >>
  4. What is the Social Security administration responsible for?

    The main responsibility of the U.S. Social Security Administration, or SSA, is overseeing the country's Social Security program. ... Read Full Answer >>
  5. Where are the Social Security administration headquarters?

    The U.S. Social Security Administration, or SSA, is headquartered in Woodlawn, Maryland, a suburb just outside of Baltimore. ... Read Full Answer >>
  6. Is the Social Security administration a government corporation?

    The U.S. Social Security Administration (SSA) is a government agency, not a government corporation. President Franklin Roosevelt ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  3. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  4. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  5. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  6. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!