Washington to unveil details of toxic-asset rescue bid

March 23rd, 2009 - 2:14 pm ICT by IANS  

Washington, March 23 (DPA) US Treasury Secretary Tim Geithner plans to unveil later Monday details of a programme that will mop up billions of dollars in toxic assets and build new capital for banks to help recover from the financial crisis.
The idea is to lure private investors into buying up troubled loans and securities which are at the heart of the financial crisis. The government would help investors with subsidies, the Wall Street Journal reported online.

Once the bad assets are removed from banks, credit lines should free up, according to the plan.

Anticipation of the announcement of the US “public-private” investment programme already sent Asian markets on the upswing as they opened Monday morning.

Geithner is expected to provide many of the details that investors complained were lacking when he gave the broad outline of the Obama administration’s rescue plan in early February.

The programme would aim to create new investment instruments to mop up $500 billion to 1 trillion in troubled loans and securities, the Journal reported. The government’s contribution would come in part from the $700 billion financial rescue plan passed in October by US Congress.

Geithner revealed the details in an interview with the newspaper, saying that the government cannot fix the financial crisis alone.

“Our judgement is that the best way to get through this is if we can work with the markets. We don’t want the government to assume all the risk,” he was quoted as saying.

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 in bonuses.

In an interview Sunday on CBS broadcaster, Obama backed Geithner against calls for his resignation.

Obama warned that there were “systemic risks” to the financial system if another large firm such as AIG would fail. Without concerted government action, “you could see an even more destructive recession and potentially depression”, Obama said.

Geithner’s public-private investment proposal could also meet resistance on Wall Street, where investors have been pounded by a US public and Congress over the bonus issue.

They are also alarmed by the personal threats against the AIG bonus recipients, and by the intention of Congress to place a 70 to 90 percent tax on bonuses paid by bailed-out companies that get more than $5 billion of government money.

But Blackrock Inc, an investment management firm, intends to participate in Geithner’s proposed new investment instruments despite such worries, its head, Lawrence Fink, told the Wall Street Journal.

On a separate financial front, Obama must convince Congress to push through his ambitious $3.6 trillion budget proposal for 2010.

To overcome the public and political inertia on the budget and growing deficit, Obama and the Democratic Party launched a bold new strategy to grow grassroots support by deploying his army of supporters who worked for his election.

Over the weekend, the supporters were to go “block by block and door by door” with the message of support for his reforms on health care, climate change, education and taxes, Obama said in a video message to his supporters.

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