The Housing Chronicles Blog: Tim Geithner outlines bank rescue plan

Tuesday, February 10, 2009

Tim Geithner outlines bank rescue plan

Treasury Secretary Geithner outlined the Obama Administration's "Financial Stability Plan" as the Senate gets ready to vote for its version of the bill. From an L.A. Times story:

Treasury Secretary Timothy Geithner this morning unveiled the Obama administration's $1.5-trillion-to-$2-trillion plan for stabilizing the nation's malfunctioning financial markets, including a public-private partnership to boost lending, warning that the new strategy "will cost money, involve risk and take time."...

The new plan involves spending $500 billion to $1 trillion in a new public-private partnership to leverage federal money to try to buy up toxic mortgage-backed securities and up to $1 trillion to expand an existing Federal Reserve plan to spur consumer and business lending. Those expenditures come on top of using the second half of the $700-billion Troubled Asset Relief Program, or TARP, to continue injecting money into struggling banks -- but this time with tighter oversight and more accountability, Geithner said...

Geithner, who helped engineer the Bush administration's financial rescue plan last fall -- the centerpiece of which was the $700-billion bailout fund designed to buy mortgage backed securities -- said those efforts helped "pull the financial system back from the edge of catastrophic failure."

But he admitted the actions ultimately were "inadequate." They failed to halt the rapid deterioration of the economy and fueled public disenchantment as the Bush administration shifted its original strategy and used most of the first half of the $700-billion fund to inject money directly into banks...

As part of the new transparency, Geithner said people would be able to track where the money was going and how it was being used on a new website,

Government agencies overseeing banks will subject them to "a carefully designed comprehensive stress test" to better assess the risks on their balance sheets. Institutions that need additional capital will get access to government money under a new mechanism that tries to use federal funds "as a bridge to private capital."

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