Mar 25, 2009
This past Monday, Treasury Secretary Timothy Geithner announced this week that the White House plans to clean out toxic assets from banks’ balance sheets. This is great news, and has been extremely well-received by Wall Street. So what will this announcement look like in terms of action? Well, according to Geithner, the administration will team with investors to buy up half a trillion dollars of bad bank assets. Doing so will ease credit for both consumers and businesses. Eventually, Geithner commented, when the plan takes full effect, the purchases will grow to $1 trillion.
Think of this plan as the government joining forces with the private sector. The administration will then purchase individual homes along with mortgage-backed securities as an initial step in the multi-faceted plan. $100 billion will be taken from the financial rescue funds bailout money, which have already been approved by Congress, to match contributions that private investors have made. The Federal Reserve will then step in and grant loans to the public-private ventures, along with loan guarantees from the Federal Deposit Insurance Corporation.
The head of the White House Council of Economic Advisors, Christina Romer, commented: “This has never been about helping Wall Street or helping a firm that made mistakes. We’re doing this for ourselves. … It’s absolutely about helping a system so that people can get their student loans, and that families can buy their house and buy their cars, and small businesses can get their loans.”
The Dow Jones Industrial reacted positively to Geithner’s unveiling of the long-term plan, making a 6.8 percent jump-its biggest since October. Furthermore, this positive reaction and hopeful step towards fixing our current financial crisis gives Timothy Geithner’s roll some much-needed support and credibility as Obama’s newly appointed Treasury Secretary. In Monday’s Wall Street Journal, Geithner wrote that the new bank program aims to accomplish the following:
“ Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets….The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.”
Here’s to hoping that this positive step in the right direction will continue to inspire confidence across Wall Street-but more importantly, it appears that this plan of action could ultimately make tangible strides towards pulling our economy back up to where it belongs. When that happens, everyone will reap the benefits.
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