Home / News / Government / Geithner Unveils New Economic Plan
Print This Post Print This Post

Geithner Unveils New Economic Plan

Treasury Secretary Timothy Geithner laid out the new administration's highly-anticipated blueprint for the nation's economic recovery Tuesday morning in Washington.
In his ""remarks"":http://www.treas.gov/press/releases/tg18.htm, Geithner said, ""The financial system is working against recovery, and that’s the dangerous dynamic we need to change. Without credit, economies cannot grow, and right now, critical parts of our financial system are damaged.""
In line with this sense of change, Geithner has renamed the government's $700 billion Troubled Asset Relief Program (TARP) - it will now be known as the ""Financial Stability Plan"":http://www.financialstability.gov/docs/fact-sheet.pdf. The new program is designed to support about $1.5 trillion in new lending and handling of distressed assets. The main elements of the program overhaul include more capital for banks, financing for as much as $1 trillion in consumer and business loans, public financing for investors willing to buy up banks' ""bad"" assets, and a new mortgage relief program to underwrite failing home loans.
_*Additional Capital for Banks*_
In order to clean up and strengthen the nation's banks, the government will provide a new program of capital support for those institutions that need it. To determine which banks are in need, Geithner is calling on banking regulators to ""initiate a more consistent, realistic, and forward-looking assessment about the risk on balance sheets ... and introduce new measures to improve disclosure.""
Those institutions that need additional capital will be able to access a new Treasury funding mechanism. But, Geithner said, the capital will come with conditions to help ensure that every dollar of assistance is used to generate a greater level of lending. The Treasury's investments in these institutions will be placed in a new Financial Stability Trust. In addition, this assistance will come with terms to encourage institutions to trade public assistance for private capital.
Geithner said, ""We believe our policies must be designed to mobilize and leverage private capital, not to supplant or discourage private capital. When government investment is necessary, it should be replaced with private capital as soon as possible.""
_*Consumer and Business Financing*_
Working jointly with the Federal Reserve, Geithner said the Treasury would commit up to a trillion dollars to support consumer and business lending. Geithner added that he expects this initiative to kickstart the secondary lending markets, bring down borrowing costs, and get credit flowing again.
Geithner pointed out that 40 percent of consumer lending has historically been available because people buy loans, put them together, and sell them in the secondary market. Because this vital source of lending has frozen up, Geithner said, no financial recovery plan will be successful unless it helps restart securitization for sound loans made to consumers and businesses - large and small.
This lending program will be built on the Federal Reserve's Term Asset Backed Securities Loan Facility (TALF), announced last November, with capital from the Treasury and financing from the Federal Reserve. The program will be expanded to include small business lending, student loans, consumer and auto finance, and commercial mortgages. In addition, Geithner said the government will increase the federally guaranteed portion of Small Business Administration (SBA) loans and give more power to the SBA to expedite loan approvals.
_*Public Financing for ""Bad"" Asset Buy-up*_
Alongside the new Financial Stability Trust, together with the Fed, the FDIC, and the private sector, the Treasury plans to establish a Public-Private Investment Fund. The intention of this program is to provide government capital and financing to help leverage private capital and get private markets working again. This fund will be targeted to the legacy loans and assets that are now burdening many financial institutions, Geithner said.
According to Geithner, by providing the financing the private markets cannot now provide, the government can help start a market for the real estate-related assets that are at the center of the nation's crisis. Geithner explained, ""Our objective is to use private capital and private asset managers to help provide a market mechanism for valuing the assets. We believe this program should ultimately provide up to one trillion in financing capacity, but we plan to start it on a scale of $500 billion, and expand it based on what works.""
_*Mortgage Relief Program*_
Before imparting the specifics of his new recovery strategy, Geithner reiterated the problems within the housing market that continue to tighten their stranglehold on the nation's economy. ""Home prices are still falling, as foreclosures rise and even credit worthy borrowers are finding it harder to finance the purchase of a first home, or refinance their mortgage,"" he said.
This recession catalyst is an issue Geithner plans to address head-on, with a comprehensive housing and mortgage-aid program. President Obama has charged his economic team with devising a comprehensive strategy to address the housing crisis, Geithner said, and ""[the team] will announce the details of this plan in the next few weeks.""
Although Geithner did not reveal the specifics of the mortgage relief program today, government officials ""have reported"":http://dsnews.comindex.php/home/news_story/2532/-1/0 that this arm of the plan would utilize between $50 billion and $100 billion of the remaining bailout fund to make mortgage payments more affordable for hundreds of thousands of at-risk homeowners, and would be led by GSEs Fannie Mae and Freddie Mac and include new incentives to persuade other mortgage companies to step up their own home retention efforts.
Commenting on the government's mortgage relief initiative, Geithner said, ""Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates. We will do this with a substantial commitment of resources already authorized by the Congress under the Emergency Economic Stabilization Act.""
Geithner stressed that government action should, and would, be ""sustained until recovery is firmly established,"" adding that ""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."" Geithner also announced the launch of a new Web site (""FinancialStability.gov"":http://www.financialstability.gov) that will provide a window of transparency into the new requirements and conditions of the plan, how taxpayer dollars are being spent, bank executives' compensation, and the effect government action is having on the lending environment.
Highlighting the expectations of the new recovery game plan, Geithner said, ""Our plan will help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses. As we do each of these things, we will impose new, higher standards for transparency and accountability.""
Geithner's plan doesn't initially call for any additional government funding, but in his first prime time news conference Monday night, President Barack Obama hinted that he would consider expanding the TARP fund if the newly revised plan doesn't bring the necessary stability to the economy. ""We don't know yet whether we're going to need additional money or how much additional money we'll need until we've seen how successful we are at restoring a sense of confidence in the marketplace,"" Obama explained.
But, Geithner promised today that the ""Department of the Treasury, the Federal Reserve, the FDIC, and all the financial agencies in our country will 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.""

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
x

Check Also

Studying the Fall of the Market and What’s Next

The stock market did its best to recover Thursday after falling off the cliff on ...

GET YOUR DAILY DOSE OF DS NEWS

Featuring daily updates on foreclosure, REO, and the secondary market, DS News has the timely and relevant content you need to stay at the top of your game. Get each day’s most important default servicing news and market information delivered directly to your inbox, complimentary, when you subscribe.