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US/Global economic crisis
US unveils 500-billion dollar plan to create toxic-assets market
Article published on the 2009-03-23 Latest update 2009-03-23 12:25 TU
US Treasury Secretary Timothy Geithner
(Photo: Reuters)
US Secretary Timothy Geithner revealed plans Monday to spearhead the economic crisis with a 500-billion-dollar (367-billion-euro) programme to help relieve bank balance sheets of toxic assets that he says "are now clogging" the financial system.
The Obama administration has established the "Public-Private Investment Programme" to provide a market for the troubled loans and securities, Geithner wrote Monday in an op-ed piece in The Wall Street Journal.
"Over time, by providing a market for these assets that does not now exist, this programme will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets," he wrote.
Geithner explained the measure was needed because the US financial system is still trying to recover and that "many banks, burdened by bad lending decisions, are holding back on providing credit."
The Public-Private Investment Programme could eventually have "the potential to expand up to one trillion dollars over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system."
Stocks surged worldwide ahead of Geithner's formal announcement due later Monday. The government-backed plan has eased worries about the credit crunch which has caused a global recession as it fanned out from the US to Europe and Asia.
Geithner outlined three central elements to the new programme:
- The progamme will use funds from the Treasury, the Federal Deposit Insurance Corporation, and the Federal Reserve to mobilise capital from private investors;
- It is to ensure that the private sector and the government share the risks and the profits from these investments;
- Geithner said the government will be protected from overpaying for the assets.
The secretary urged action to solve the crisis and warned that fixing the banking system "will take time, and progress will be uneven, with periods of stress and fragility".
His comments follow US President Barack Obama's optimism in a television interview.
"We're already starting to see flickers of hope out there," Obama told the CBS programme 60 Minutes on Sunday.
"That promises the possibility at least of the housing market bottoming out and stabilising."
