INSTANT VIEW: U.S. announces program to aid consumer lending

NEW YORK (Reuters) - The Federal Reserve on Tuesday announced a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities, in another massive life-support intervention for the U.S. financial system.

KEY POINTS: * Fed says creates $200 billion facility to support asset-backed securities * Facility to support issuance of student, auto, credit card and small business administration-backed loans * Fed says to buy up to $500 billion in mortgage securities backed by Fannie Mae, Freddie Mac, Ginnie Mae * Fed says US Treasury to provide $20 billion to Fed for credit protection

COMMENTS:

MATTHEW STRAUSS, SENIOR CURRENCY STRATEGIST, RBC CAPITAL

MARKETS, TORONTO:

"We saw a positive reaction from the market to this further stimulus and backstopping of the ABS market. It's also moving closer to a direct stimulus package for consumers.

"In the long run, there are risks. A few years from now, if the economy is still struggling but with the added liabilities of these stimulus efforts, then that could weigh on the dollar. The U.S. government is taking on additional liabilities to stimulate growth. Then again, so are other countries. Staying on the sidelines and letting the economy slide would be much worse. This is the price that needs to be paid to help the economy through this difficult period."

KEVIN LOGAN, SENIOR U.S. ECONOMIST, DRESDNER KLEINWORT, NEW

YORK:

"The announcements were out earlier so we kind of had a sense of what is going on. The initiatives that the Treasury and the Fed are putting together right now are a good step. The market is not willing to accept as much risk as before, people are risk averse so they are not investing in the securities that back loans to potential home buyers or car buyers and that has forced up the yields on existing securities that are issued by the GSEs, and it has pretty much shut down the asset-backed securities market.

"By putting these initiatives in place, starting with the mortgage program, the Fed should be able to push down the yields on mortgage-backed securities and the agency debt and that will provide cheaper financing for the GSEs who in turn can make mortgage loans at lower rates. That should prop up the housing market and slow the decline in housing prices, which in turn might prevent some foreclosures and help the banking system.

This is another logical step in the progression of easing of credit conditions."

CHUCK BUTLER, PRESIDENT, EVERBANK WORLD MARKETS, ST. LOUIS,

MISSOURI:

"It's all fine and dandy for today and makes everybody feel good about the prospects of everything working out here in the U.S., but I don't see how it doesn't unfold negatively for the U.S. dollar. There are just too many dollars. The size of this just keeps growing. There's nothing to stop it at this point.

"They're going to commit more money to unfreeze the markets. I don't think (the size issue will weigh on the dollar) until the credit market problem looks like it's going to be resolved. To me, that's the focus of everyone right now. This morning we had negative growth in the third quarter and all these bad data just keeps mounting. As soon as the markets return their focus back to that, that's when the dollar starts getting hit again."

JOHN MCCARTHY, DIRECTOR OF FOREIGN EXCHANGE TRADING, ING

CAPITAL MARKETS, NEW YORK:

"The Federal Reserve balance sheet has crossed $2 trillion and given the size of the U.S. economy and size of financial institutions here and abroad it will expand further. Who is to say what is too large for the Fed? They are in a unique position to fund their balance sheet. Strikes me as the lesson learned from the Great Depression is action is absolutely warranted. Act to stabilize the economy and the financial system. At the minimum they have removed leverage from the equity market so no immediate pop. Foreign exchange is a little suspicious we can extend this equity market rally."

JOHN SILVIA, CHIEF ECONOMIST, WACHOVIA SECURITIES, CHARLOTTE:

"In modest amount, it provides liquidity and takes bad assets off the balance. But anything overdone and the sizes we are getting into here is a significant commitment of the government."

"It may mean longer run issue with inflation and inflation concerns. It may be too much of a good thing is a bad thing. We may overpaying for bad assets. There may be a repeat of inflationary pressure."

NIGEL GAULT, DIRECTOR OF U.S. ECONOMIC RESEARCH, GLOBAL

INSIGHT, LEXINGTON, MASSACHUSETTS:

"Obviously given how bad consumer spending is (in the GDP data) that's one of the reasons why the government is coming up with this new program to support consumer lending... they've started trying to focus on keeping consumer going if they can."

MARC CHANDLER, GLOBAL HEAD OF FX STRATEGY, BROWN BROTHERS

HARRIMAN, NEW YORK:

"The Fed says its goal is to 'reduce the cost and increase the availability of credit' to purchase homes and help improve the capital markets. The logic appears to be that these steps, along with the others that have been taken and along side the large fiscal stimulus package that is being bandied about, give greater optimism that the financial crisis is easing. The urgency to de-leverage may be easing."

TODD ABRAHAM, CO-HEAD OF GOVERNMENT AND MORTGAGE BONDS,

FEDERATED INVESTORS, PITTSBURGH, PENNSYLVANIA:

"It's certainly all positive. Given the difficulties the GSEs have had on selling their debt, it's been difficult for them to purchase mortgages. The Fed is taking that away from them and doing it themselves."

"The Fed is doing it in a more efficient way than using Fannie and Freddie. They are getting to the heart of the problem, it's clean, it's quick, it's direct. It's a good way to bring down mortgage rates, because at the end of the day they have to stabilize the housing market."

ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE, BOSTON:

"I don't understand how Paulson can make direct loans to individuals, so I need to dig into that. It is new ground, and if they can pull it off it'll make some people happy, but I don't know how effective it'll actually be."

JIM DEMASI, CHIEF FIXED INCOME STRATEGIST, STIFEL NICOLAUS &

CO. INC., BALTIMORE:

"It should improve liquidity in asset-backed securities. When you have demand for risk products, that should diminish some appetite of the extreme flight-to-safety that we've seen recently."

SCOTT BROWN, CHIEF ECONOMIST, RAYMOND JAMES & ASSOCIATES, ST

PETERSBURG, FLORIDA:

"One of the big problems we have is that there has been a lack of demand for debt. You have seen the market for securitized debt such as credit cards or student loans dry up completely. Here is the Fed taking a bunch of debt out of the market, which doesn't hurt. I think it should it should help unblock the credit markets."

"There may be less of a flight to safety in Treasuries."

MARKET REACTION: STOCKS: U.S. equity index futures turn higher. BONDS: Treasury debt prices pared gains. DOLLAR: U.S. dollar trimmed gains against the euro.