Menu 
|
|
Treasury Secretary Timothy Geithner vowed on
Tuesday to jumpstart the nation’s financial system, announcing sweeping new plans to
aid struggling banks, spur lending and help beleaguered homeowners.
The program will commit as much as $2 trillion in public and private funds to spur
consumer and business lending.
Geithner christened the administration’s revamped bailout program the “Financial
Stability Plan,” a not-so-subtle attempt to distance the new Obama administration
from the much-maligned management of the “Troubled Asset Relief Program”
established in the waning days of the Bush administration.
“To get credit flowing again, to restore confidence in our markets, and restore the
faith of the American people, we are fundamentally reshaping the government’s program
to repair the financial system,” Geithner said during a speech at the Treasury
Department.
As he spoke, the Dow Jones Industrial Average dropped nearly 200 points.
Geithner described the actions took by the past administration as “absolutely
essential” but “inadequate” because of a lack of oversight and failure to
quickly address the foreclosure crisis.
“We believe that access to public support is a privilege, not a right,” Geithner
said. “Government support must come with strong conditions to protect the taxpayer
and with transparency that allows the American people to see the impact of those
investments.”
The new administration will require banks receiving aid to show how the assistance will
expand lending, participate in mortgage foreclosure mitigation programs and limit
executive compensation, shareholder dividends and acquisitions.
But Geithner stopped short of imposing some of the stricter conditions proposed by
Democratic lawmakers and even some White House aides, opting to allow banks to decide how
they spend the recovery funds.
The standing-room only announcement was attended by key members of Congress and top
economic aides from the White House.
Sen. Chris Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee,
introduced Geithner – optics intended to demonstrate a show of confidence from the
Democratic-controlled Congress.
The plan has four major components.
First, federal bank regulators will develop uniform standards to clean up and strengthen
banks, and conduct “stress tests,” to ensure the largest banks can survive
worsening economic conditions. Needy banks will receive capital injections to keep them
lending through the downturn, rather than sitting on the government money as many banks
are doing now.
“The capital will come with conditions to help ensure that every dollar of assistance
preserves or generates lending capital above the level that would have been possible in
the absence of government support,” Geithner said.
Second, aiming to thaw frozen capital markets, the Treasury, the Federal Reserve and the
Federal Deposit Insurance Corporation will create a new public-private investment fund
that aims to incentive private companies to buy up toxic assets weighing down bank balance
sheets. Government capital and financing will leverage private capital to buy up the bad
bets.
The partnership is a variation on the “bad bank” concept many financial experts
expected the administration to pursue, in which the government alone would buy bad assets
from the banks. The new Obama administration plan sidesteps the problem of having the
government figure out how much to pay for these illiquid assets by letting the private
sector buyers determine price.
The Treasury is still designing many of the details of the program, Geithner said, which
will begin by providing up to $500 billion in financing capacity but could ultimately
double in size.
Third, the Obama administration will undertake a major expansion of a consumer-business
lending program to kick start secondary markets and get much-needed credit flowing to
consumers and businesses.
The joint initiative with the Fed will leverage up to $1 trillion in new lending.
Finally, Geithner announced the Treasury will also work with the Fed to commit $50 billion
to reduce monthly mortgage payments. In January, top White House economic adviser Lawrence
Summers promised congressional Democrats that the administration would commit $50 billion
to $100 billion to mortgage-related provisions.
Additionally, the administration will work with the Fed to establish loan modification
guidelines for government and private programs and mandate that banks receiving bailout
cash must participate in foreclosure mitigation efforts.
Geithner said the Bush administration “should have moved more forcefully to limit the
damage” from growing numbers of foreclosures. But he offered few details about the
new program, saying he would announce more in coming weeks. |
|
