Treasury unveils long-awaited 'bad-asset' plan - Mar. 23, 2009
Treasury unveils long-awaited 'bad-asset' plan
By partnering with private investors, government hopes it can finally flush out toxic assets from banks' balance sheets.
By David Ellis and Jennifer Liberto, CNNMoney.com staff writers
March 23, 2009: 8:38 AM ET
WASHINGTON (CNNMoney.com) -- The Treasury Department unveiled its long-awaited plan to remove many of the troubled assets from banks' books Monday, representing one of the biggest efforts by the U.S. government yet to tackle the ongoing financial crisis.
Under the new so-called "Public-Private Investment Program", taxpayer funds will be used to seed partnerships with private investors that will buy up so-called toxic assets backed by mortgages and other loans.
The goal is to buy up at least $500 billion of bad assets -- such as subprime mortgages that are now in danger of default. Doing so would help cleanse the balance sheets of many of the nation's largest banks, which continue to suffer billions of dollars in losses.
The government will then run auctions between the banks selling the assets and the investors buying them, hoping to effectively create a market for these assets.
To kickstart things, the administration said it will commit $75 billion to $100 billion and would consider how the program is progressing before committing more money.
The plan, which was widely hinted at over the weekend, appeared to be warmly received by Wall Street. Stock futures, an indicator of how markets may open when trading begins, were sharply higher Monday morning.
Investors have been waiting expectantly for details since Treasury Secretary Tim Geithner first announced the framework of a plan last month to address two of the biggest problems in the banking sector: the toxic assets keeping banks from lending and the shortage of capital at major institutions.
One of the biggest difficulties in getting the program off the ground was how to price the soured assets. If the government paid too little, banks would take the hit. But if the government overpaid, then already-soaked taxpayers would feel the pinch.
One nagging concern, however, is whether the government's involvement will actually spur banks and private investor groups, such as hedge funds and private equity firms, to participate.
Administration officials indicated Sunday they had gotten support from private investors and banks who have been briefed about the program. But some analysts questioned whether the government's help would be enough to push investors and banks toward figuring out a price.
At the same time, there are fears that investors may be reluctant to participate in light of the fact that Congress has retroactively altered the terms of many of the government rescue programs so far.
Treasury unveils long-awaited 'bad-asset' plan
By partnering with private investors, government hopes it can finally flush out toxic assets from banks' balance sheets.
By David Ellis and Jennifer Liberto, CNNMoney.com staff writers
March 23, 2009: 8:38 AM ET
WASHINGTON (CNNMoney.com) -- The Treasury Department unveiled its long-awaited plan to remove many of the troubled assets from banks' books Monday, representing one of the biggest efforts by the U.S. government yet to tackle the ongoing financial crisis.
Under the new so-called "Public-Private Investment Program", taxpayer funds will be used to seed partnerships with private investors that will buy up so-called toxic assets backed by mortgages and other loans.
The goal is to buy up at least $500 billion of bad assets -- such as subprime mortgages that are now in danger of default. Doing so would help cleanse the balance sheets of many of the nation's largest banks, which continue to suffer billions of dollars in losses.
The government will then run auctions between the banks selling the assets and the investors buying them, hoping to effectively create a market for these assets.
To kickstart things, the administration said it will commit $75 billion to $100 billion and would consider how the program is progressing before committing more money.
The plan, which was widely hinted at over the weekend, appeared to be warmly received by Wall Street. Stock futures, an indicator of how markets may open when trading begins, were sharply higher Monday morning.
Investors have been waiting expectantly for details since Treasury Secretary Tim Geithner first announced the framework of a plan last month to address two of the biggest problems in the banking sector: the toxic assets keeping banks from lending and the shortage of capital at major institutions.
One of the biggest difficulties in getting the program off the ground was how to price the soured assets. If the government paid too little, banks would take the hit. But if the government overpaid, then already-soaked taxpayers would feel the pinch.
One nagging concern, however, is whether the government's involvement will actually spur banks and private investor groups, such as hedge funds and private equity firms, to participate.
Administration officials indicated Sunday they had gotten support from private investors and banks who have been briefed about the program. But some analysts questioned whether the government's help would be enough to push investors and banks toward figuring out a price.
At the same time, there are fears that investors may be reluctant to participate in light of the fact that Congress has retroactively altered the terms of many of the government rescue programs so far.
