US to mop up $500bn in bad debt
The US Treasury unveiled a revamped financial rescue plan to cleanse $500 billion (Dh1.8 trillion) in spoiled assets from banks' books and support $1trn in new lending through an expanded Federal Reserve programme.
The renamed "Financial Stability Plan", rolled out yesterday by Treasury Secretary Timothy Geithner will also devote $50bn in federal rescue funds to try to stem home foreclosures and soften the crushing impact of the deep housing crisis.
The Treasury said a public-private investment fund will be established, seeded with government money, to leverage private capital so that so-called toxic assets can be sponged out of the faltering banking system. The hope is that that will enable banks to resume lending.
The public-private investment fund would start at $500bn but could expand to up to $1trn in financing capacity, Geithner said.
After Geithner's announcement, stock prices fell and the dollar extended losses, while prices for US Treasury debt securities extended gains. James Ellman, President of Seacliff Capital, said: "Investors want clarity, simplicity, and resolution. This plan is seen as convoluted, obfuscating and clouded."
Geithner acknowledged deep scepticism has developed over the fairness and efficiency of a $700bn bank bailout programme approved by Congress in October. He said leaders of some financial institutions that have received money had squandered the good faith that is needed to make the bank rescue effective.
"The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust," Geithner said.
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