Fed to Use Bailout Billions to Jump Start Credit

Treasury Secretary Henry M. Paulson Jr. announced today that the majority of the government’s $700 billion bailout plan would not go to buying up troubled mortgage-backed securities as presumed, rather to fund increased consumer and business credit including credit cards, auto loans, and student loans.

The Fed is betting that earmarking much of its bailout package for stimulating lending will help reverse the current recession by restoring consumer confidence and vital lines of credit to small businesses who, without access to credit, cannot grow and create jobs.

Whether the government money will be enough to encourage banks to start lending again remains to be seen. If Paulson’s plan works, however, consumers may start seeing those credit card ads in the mail again—and stand better chances of getting the car or student loans they may have been denied earlier this year.