domain-B – Hedge funds will be allowed to borrow from the Federal Reserve for the first time under a landmark $200-billion programme intended to support consumer credit.

The new programme is aimed at injecting credit for consumers and small businesses including auto loans and credit cards will be launched in February.

The Fed said on Friday it would offer low-cost three-year funding to any US company investing in securitised consumer loans under the Term Asset-backed Securities Loan Facility (TALF). This includes hedge funds, which have never been able to borrow from the US central bank before.

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Tags: asset backed securities, auto loans, borrowers, consumer credit, consumer loans, consumers, credit-cards, eligible collateral, federal-reserve, interest-rate, landmark, loan facility, new-york-fed, securities loan, small businesses

International Herald Tribune – In May, David Einhorn, an outspoken hedge fund manager, took the microphone at a large industry gathering and laid out his case against the investment bank Lehman Brothers.

The firm, he told the crowd, had used "accounting ingenuity" to avoid large write-downs and remained tainted by bad commercial real estate investments. Einhorn stood to profit by convincing people of his view: He had been betting against Lehman’s stock, which stood at around $40 when he spoke, since July 2007.

In the four months that followed, the tactic known as short-selling, in which an investor bets on a decline in a stock price, played a role in hastening a fire sale of Lehman’s shares – an erosion that ultimately helped bring the venerable 158-year old firm to its knees.

At emergency meetings led over the weekend by Timothy Geithner, the president of the Federal Reserve Bank of New York, and Treasury Secretary Henry Paulson Jr., the heads of major financial institutions said they feared short-sellers would now capitalize on the climate of fear surrounding Lehman and target other financial firms. They raised the idea of having the Securities and Exchange Commission reinstate a temporary rule to limit short-selling, according to two people who were briefed on, but did not attend, the meetings.

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