"Throughout 2007 and 2008, one hedge fund after another failed and investment banks like Bear Stearns Cos. followed, and the system began to shut down.
The plunge in credit was precipitous. Investors bought $900-billion (U.S.) of securities backed by car loans and other consumer and small-business loans in 2006. By 2008, that had plunged to $150-billion. And in the first three months of 2009, before TALF, investors were willing to buy a measly $2-billion.
In Canada, the disappearance of the market for riskier mortgage-backed bonds means that companies like Xceed Mortgage Corp. are unable to renew mortgages for many customers. That could leave as many as 25,000 borrowers unable to renew their home loans."
David Dodge and others as well, weigh in on the issue of regulating the Shadow Banking Industry. Many seem to be of the opinion that TALF may not achieve it's desired effect due to greatly reduced demand for credit.
"It's the wrong way to go if we think that encouraging people to borrow more and leverage up more and to spend more will get us out of this mess, because that's what got us into this mess in the first place," Ms. Tavakoli said.
It's far from clear that people who are struggling with the recession are even willing to step up to buy new cars and consumer goods, no matter what the governments in Canada and the U.S. do to try to get people borrowing and spending again.
"The demand for credit is way down," said Bill Dunkelberg, chief economist for the U.S. National Federation of Independent Business. Mr. Dunkelberg is also chairman of a small community bank in New Jersey, where he said he sees a big decline in loan applications. Because of that, he said, the Fed and the Treasury may be "pushing on a string" with TALF."