Obama’s bailout plan to ‘involve risk, take time’February 10th, 2009 - 11:54 pm ICT by IANS
Washington, Feb 10 (IANS) The Barack Obama administration Tuesday unveiled an overhauled $700 billion financial-rescue fund promising a “comprehensive” attack on the financial crisis, but warned its strategy will “cost money, involve risk and take time”.
“The financial system is working against recovery, and that’s the dangerous dynamic we need to change,” Treasury Secretary Timothy Geithner said unveiling the plan here Tuesday. “Without credit, economies cannot grow, and right now, critical parts of our financial system are damaged.”
Geithner pledged a further round of capital injections for US banks and an initiative, in partnership with private investors, to address the toxic assets weighing down banks.
But new government funds would come with tighter restrictions on banks, including limits on dividend payments, acquisitions and executive pay.
“It is essential for every American to understand that the battle for economic recovery must be fought on two fronts,” Geithner said. “We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families.”
Laying out his plans for deploying the second half of the $700 billion bank rescue plan, Geithner said: “This comprehensive strategy will cost money, involve risk, and take time.”
The initial bailout effort, which he helped administer in his previous job as head of the Federal Reserve Bank of New York, was “essential” while “inadequate” to support the financial system and the secondary-lending market.
The new capital will have tougher conditions than the Treasury’s first round of as much as $250 billion of bank-stake purchases.
Participating banks will have their dividends and political lobbying efforts restricted, along with limits on stock repurchases, acquisitions, executive compensation and so-called golden parachutes. Any luxury spending provisions must also be disclosed.
“The American people have lost faith in the leaders of our financial institutions” and are skeptical of the rescue spending so far, Geithner said.
“In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them,” Geithner said.
“Because this vital source of lending has frozen up, no plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses - large and small,” he said.
Geithner’s package includes $50 billion for measures to stem mortgage foreclosures, administration officials said. Banks receiving federal funds will be required to participate in efforts to mitigate foreclosures.
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