Treasury/Fed to Insure Up To $1 Trillion in Toxic Assets
February 10th, 2009 at 3:27 pm - by admin
In another of the recent political rollouts in response to the financial crisis being seen internationally, the U.S. Treasury announced Tuesday it would be providing up to $1.0 trillion in insurance financing for protecting the purchase of so-called “toxic assets.”.
Tim Geithner, the new Treasury Secretary under the Obama administration, outlined his new plan, entitled the “Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts,” which provided a number of financial provisions and expansion of Federal Reserve lending facilities (called the “TALF”) to include another trillion dollars worth of insurance against consumer debt including mortgage backed securities.
This public-private partnership will allow the public sector to share some of the risk associated with purchasing potentially risky assets and assist in boosting trading in a market which is mostly halted.
“We are exploring a range of different structures for this program, and we will seek input from market participants and the public as we design it,” Geithner said. “We believe this program should ultimately provide up to $1 trillion in financing capacity, but we plan to start it on a scale of $500 billion, and expand it based on what works.”
Tim Geithner warned that the policy would be unlikely to change the conditions of the markets immediately - price discovery and revisionism is required over time to allow the private sector to adjust to the real value of the assets, even with the insurance provided by the public sector.
“Our challenge is much greater today because the American people have lost faith in the leaders of our financial institutions, and are skeptical that their government has – to this point — used taxpayers’ money in ways that will benefit them. This has to change,” said Geithner, “To get credit flowing again, to restore confidence in our markets, and restore the faith of the American people, we are fundamentally reshaping the government’s program to repair the financial system. Our work will be guided by the lessons of the last few months and the lessons of financial crisis throughout history.”
“We believe that the policy response has to be comprehensive, and forceful. There is more risk and greater cost in gradualism than in aggressive action.”
