Fed bets $800 billion on consumers

That $200 billion aimed at spurring consumer borrowing will come from the Federal Reserve Bank of New York, which will lend that money to holders of securities backed by consumer debt, such as credit card debt.

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He said the fact that the Fed and Treasury had to work together to get an additional $800 billion into the system is not a sign that the $700 billion bailout of banks and Wall Street firms passed by Congress last month has been a failure. He said that, without that program, it is likely that the financial markets would be in even worse shape than they are today.

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This new program is much closer to the original plans for TARP in that mortgage assets are being purchased. But government officials briefing reporters stressed that this new plan is different from TARP in that only mortgage securities backed by Fannie, Freddie and Ginnie will be in the new program.

Those loans, for the most part, are of better quality than many of the troubled assets that would have been purchased under the original TARP plan.

There is also limited additional risk for the federal government from the Fed buying that $600 billion in debt from the three firms, since the government is already on the hook for losses those firms suffer on the loans they back.