LOLFed FTW - again.

Holy shit. You know the financial climate is frightening when investors are turning down the promise of cheap money - Bernanke can't even give it away at this point (though at least the rest of the central bank cartel is reluctantly going along with the plan).

From Bloomberg:

The Federal Reserve’s $1 trillion effort to restart the market for securities backed by loans is encountering resistance from investors, undermining Chairman Ben S. Bernanke’s attempt to further drive down borrowing costs.

Deals arranged for the Term Asset-Backed Securities Loan Facility, or TALF, may fail to rise much next week from the $8.3 billion first round in March, said Reed Auerbach, co-chief executive officer of law firm McKee Nelson LLP in New York. Hedge funds and other investors are balking because of visa limits on workers and possible efforts to tax earnings.

Investors are concerned that Congress, while responding to taxpayer anger over bank bailouts, hasn’t described how the most sweeping regulatory overhaul since the Great Depression will change the ways financial companies turn a profit. The government needs Wall Street to help revive credit yet can’t ignore the outcry over aid to firms that took excessive risks.

“I can do very well for my clients without venturing into federal waters which are inhabited by sharks,” said David Kotok, the chairman of Cumberland Advisors Inc. in Vineland, New Jersey, who manages about $1 billion. “We are leery of doing anything with the federal government.”

Did you hear that, Geithner? They don't trust you or any of your crack team of economic hitman as far as they can throw you. You really shouldn't have scared them with the "R" word - not because regulation is not desperately needed in the banking and finance sector but because you are not the man for the job. Had an actual regulator stepped in and said "Alright, this is the problem and here's what we're going to do to fix it" without leaving gaping holes in logic, this particular little scheme might have had a chance.

Says Reuters:

U.S. asset-backed securities spreads held steady in quiet trade on Monday, as about $1.5 billion of TALF-eligible sales were on deck to price on the eve of the Federal Reserve's subscription deadline

"On the demand side, a few more investors signed up for TALF, but issues around the customer agreements have not been resolved," said Chris Flanagan, analyst at JPMorgan Securities. "Dealers are farther rather than closer to a standard customer agreement, which could potentially hurt secondary trading of TALF eligible ABS," the analyst said.

After examining potential loss-adjusted yields on bonds stemming from the leverage offered through TALF, Barclays Capital said in a report, TALF offers excellent returns to retail auto ABS investors.

"Last cash flow 'AAA' notes look extremely appealing and can yield over 40 percent even assuming moderate spread widening and higher unemployment over the life of the TALF loan," Barclays said.

Turning to the derivatives market, top "AAA" slices of the ABX subprime mortgage indexes finished lower in quiet volume on Monday. The ABX 07-1 and ABX 07-2 indexes closed at 23.73 and 23.60, respectively, traders said.

Well how in the hell did the Fed expect to get anyone to jump on board with asset-backed securities drawn on a market that is practically in rigor mortis? I don't know about you but the last thing I'm considering right now is shopping around for a new car loan.

Damn you, Bernanke! You should have muzzled Geithner! Then they'd be all over your ABS scam.

Or perhaps it's because the Fed chose to have TALF securities rated by the same agencies which made major ratings errors on "AAA" subprime securities back... well... I don't need to talk about "the good old days."

Bloomberg:

The U.S. Federal Reserve’s $1 trillion effort to restart the market for securities backed by loans “unfairly” benefits the three largest credit rating companies, Connecticut Attorney General Richard Blumenthal said in a letter to Fed Chairman Ben S. Bernanke.

The Fed mandated that for securities to be eligible for government support they must be rated by two or more “major nationally recognized statistical ratings organizations,” or NRSROs, Blumenthal wrote today. Only Moody’s Investors Service, Standard & Poor’s and Fitch Ratings would qualify, excluding six other smaller companies, according to the attorney general, who said he is opening an investigation into the matter.

Edward Sweeney, an S&P spokesman, said in an e-mailed statement that an investigation is “without merit.” Kevin Duignan, a Fitch spokesman, called it “an unfortunate development stemming from incomplete or inaccurate information.” Both spokesmen noted, for example, that fees on on this work are subject to caps. Michael Adler, a Moody’s spokesman, declined to comment.

David Skidmore, a Fed spokesman, said, ”We have received Blumenthal’s letter and we will be considering a reply.”

“I strongly urge the Federal Reserve to reassess and revamp its current policy,” Blumenthal wrote to Bernanke. “The Federal Reserve should not be favoring large market participants, whose mistakes helped precipitate the current crisis, over smaller ones seeking to break into the market.”

Did the Fed just get kicked in the teeth twice over TALF? Oh happy day... Get it together, boys! All those little dollars that China is sitting on are counting on you!