Geithner unveils details of trillion-dollar toxic-asset rescue bid (Lead)March 24th, 2009 - 12:41 am ICT by IANS
Washington, March 23 (DPA) The US will use both private and public funds to buy up to $1 trillion in toxic mortgage assets that have brought Wall Street banks to the brink of collapse, US Treasury Secretary Timothy Geithner said Monday in his latest bid to end a financial crisis that has spread across the globe.
The new effort will include $75-$100 billion in government funds, Geithner said as he unveiled the much-anticipated details of the “public-private” programme, which has been developed over the last month.
Geithner said the new plan would force private investors to take on some of the risk in nursing the US financial system back to health, rather than putting the entire burden on US taxpayers.
Up to 50 percent of the money put in by private investors will be guaranteed by the government. Geithner maintained that the administration was being as aggressive as it could to stabilize a financial system that has sent the wider US economy into a tailspin.
“We’re gonna do what’s necessary to protect the system,” Geithner said, acknowledging there was “deep scepticism” across the country over both the government and Wall Street’s role in the crisis.
“The basic lesson of financial crises is recessions are shorter, they cause less damage … if you move forcefully early,” he said.
The move comes as Geithner’s political capital has dwindled amidst the widening recession and growing firestorm over bailed-out insurance giant AIG’s payment of 165 million dollars in bonuses. Some conservatives have called for his resignation, but President Barack Obama has stood by his top financial official.
US stock markets surged more than 3 percent after Geithner’s announcement. Investors had complained that details were lacking when Geithner gave the first broad outline of the Obama administration’s rescue plan in early February.
The public-private investment programme is the latest in a series of dramatic moves by the Treasury and Federal Reserve to stabilize the US banking system and restart lending to consumers.
A separate government programme that began this month will invest up to $1 trillion directly in the frozen credit markets for small business, car and student loans.
The idea behind the Treasury’s newest plan is to lure private investors into buying up troubled mortgage loans and securities that are at the heart of the financial crisis and have so far cost banks more than $1 trillion.
Many financial firms have already plunged into bankruptcy, and a critical problem is that banks have been unable to figure out exactly how much their mortgage holdings are really worth.
The new plan would take the toxic assets entirely off the balance sheets of US banks, which could in turn restart lending to US consumers. The private role is intended to allow the market - rather than government - to help put a price on the mortgage assets, which have been plummeting in value since the US housing bubble collapsed
in late 2006.
The partnership between public and private institutions is a great way to help restore liquidity in the market,” said Steve Bartlett, president of the Financial Services Roundtable, Wall Street’s biggest lobby group. “It is encouraging to see Treasury
creating unique ways of stimulating the economy while protecting the taxpayer.”
Geithner said he was confident the public funds would convince investors to buy into a market they have been reluctant to get involved in so far. He rejected the need for government to take on the principle share of the troubled assets.
“In a financial crisis, people always want the government to take more risk,” Geithner told reporters at the Treasury in Washington.
“We’re trying to find a balance that’s better for the taxpayer.”
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Tags: aig, barack obama, brink of collapse, financial crises, financial crisis, government funds, insurance giant, mortgage assets, private investment, private investors, recession, recessions, resignation, scepticism, stock markets, tailspin, timothy geithner, treasury secretary, trillion, wall street banks