US pins economic hopes on toxic take-up
The Obama administration today launched its much-awaited assault on the worst banking crisis in 70 years.
US Treasury Secretary Timothy Geithner's banking plan will use low-interest loans and up to 100bn ($74) left from the government's 700bn (€517.6bn) bailout fund to entice private sector investors to initially buy about buy 500bn (€369.73bn) in toxic assets - taking them off the books of the nation's banks.
The administration also said the initial effort could grow to a trillion dollars (€739.78bn), as the programme proves successful in attacking the problem that has stifled bank lending to consumers and business, compounding the worsening global downturn.
In a lengthy fact sheet the administration said it expects participation from a broad array of private sources, ranging from pension funds to insurance companies and other long-term investors.
The Federal Reserve, which is the US central bank, and the Federal Deposit Insurance, an independent agency of the government that backs bank deposits, will have large roles in putting up the needed cash.
However, the programme may face stiff resistance as it debuts after a week of Wall Street-bashing in Congress, where politicians were outraged over troubled insurance company American International Group paying $165m (€122m) in bonuses after taking more than 170bn (€125.8bn) in government bailouts to stay afloat.
President Barack Obama, who expressed outrage over the payouts, has, nevertheless signalled, opposition to a quickly passed House of Representatives measure to tax such bonuses at 90%.
The government has been struggling since the credit crisis hit last autumn to find a way to mop up the bad assets.
The Geithner banking plan was designed to resolve the vexing problems of how to price the bad bank assets while showing the government has sufficient capital to make a difference.
To encourage investors to be more supportive, the government is offering sizeable financial enticements, from shouldering much of the financial risk to providing low-interest loans to purchase the assets.
