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Total Bank Bail-outs Could reach $2 TRILLION!!!

Mike

Well-known member
US Treasury Secretary Timothy Geithner unveiled a stepped-up program Tuesday to stabilize the financial system including an initial fund of 500 billion dollars to absorb toxic assets.
The plan includes a public-private partnership aimed at soaking up toxic assets clogging the financial system. It also includes new efforts to boost consumer lending, limit home foreclosures and provide new capital for banks.

Geithner said the plan would "bring the full force of the United States government to bear to strengthen our financial system so that we get the economy back on track."

A key element will be a public-private investment fund started with 500 billion dollars "with the potential to expand up to one trillion dollars," to help cleanse the banking system of toxic real-estate assets.

This will serve the role of an aggregator bank, or "bad bank" to help financial institutions value their mortgage securities and clean up their balance sheets.

A second element will include additional capital injections into banks.

"While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive 'stress test' will have access to a Treasury-provided 'capital buffer' to help absorb losses and serve as a bridge to receiving increased private capital," the Treasury said.

Additionally, the Treasury and Federal Reserve will expand a program to boost lending for mortgages and other consumer and business loans to up to one trillion dollars.

The US central bank, in coordination with a Treasury Department effort to steady the financial system, said it was preparing "a substantial expansion" of a program announced last year to get more credit flowing.

"This initiative will kickstart the secondary lending markets, to bring down borrowing costs, and to help get credit flowing again," Geithner said.

The Fed would pump up the amount to one trillion dollars from the previously announced 800 billion for its Term Asset-Backed Securities Loan Facility, which would accept mortgage-backed securities and securities backed by auto loans, credit card loans, student loans, and some small business loans.

The expansion "would be supported by the provision by the Treasury of additional funds from the Troubled Asset Relief Program," the Fed said.

The new effort also commits 50 billion dollars to prevent "avoidable foreclosures" of owner-occupied homes by helping to reduce monthly payments for middle-class families.

"Many of these families borrowed beyond their means. But many others fell victim to terrible lending practices that left them exposed, overextended, and with no way to refinance," Geithner said.

"On top of that, homeowners around the country are seeing the value of their homes fall because of forces they did not create and cannot control."

Geithner said President Barack Obama had ordered "a comprehensive plan to address the housing crisis" that would be announced "in the next few weeks."


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PLUS INTEREST, I might add!!!!!!!!!!!!!!!!!!!! :???:
 

Sandhusker

Well-known member
Geithner Unveils New Bank Bailout: Devil's in the Details (Really)

Posted Feb 10, 2009 01:32pm EST by Aaron Task in Investing,

Treasury Secretary Timothy Geithner unveiled the latest bank bailout effort Tuesday, a.k.a. a new "Financial Stability Plan."
In seeking to make a break with his predecessor and quell taxpayer anger over how the first $350 billion TARP funds were allocated, Geithner outlined the basic principles behind the plan that focus on transparency and accountability:

Policy response has to be comprehensive, and forceful. "There is more risk and greater cost in gradualism than in aggressive action."
Action has to be sustained until recovery is firmly established. "Previous crises lasted longer and caused greater damage because governments applied the brakes too early," he said. "We cannot make that mistake."
Access to public support is a privilege, not a right. "Government support must come with strong conditions to protect the taxpayer and with transparency that allows the American people to see the impact of those investments."
Policies must be designed to mobilize and leverage private capital, not to supplant or discourage private capital.
Of course, the devil is in the details and stocks tumbled in the wake of Geithner's midday press conference, in part because the plan (vs. the principles) remains sketchy on two key elements:

"We are exploring a range of different structures for this program," Geithner said of a plan to create a public-private investment fund that will start at $500 billion, and then expanded "based on what works."

The risk is that this fund will provide hedge funds and other private investors an opportunity to buy toxic debt whereby they benefit from any potential upside while all the downside risk is taken by the government, i.e. more privatized gains and socialized risks.

Secondly, Geithner's plan to "stress test" banks before they are able to access additional government capital, which is a step in the right direction vs. what's occurred to date.

However, Geithner also plans to continue the policy of propping up zombie banks vs. declaring those that fail the stress test insolvent.

"Those institutions that need additional capital will be able to access a new funding mechanism that uses funds from the Treasury as a bridge to private capital," he said (see above).

The bottom line, unfortunately, is the Obama administration is still following the Bush administration's 'too big to fail' doctrine.

"We believe that the United States has to send a clear and consistent signal that we will act to prevent the catastrophic failure of financial institutions that would damage the broader economy," Geithner said.

In other words, it's wrapped in new packaging but the bailout story remains the same.
 
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