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WASHINGTON - TREASURY Secretary Timothy Geithner announced on Sunday a new US$500 billion (S$755 billion) federal programme to remove from bank balance sheets troubled assets that he said 'are now clogging' the US financial system.
'The financial system as a whole is still working against recovery,' Mr Geithner said in an article published by The Wall Street Journal. 'Many banks, still burdened by bad lending decisions, are holding back on providing credit.' He said the administration of President Barack Obama had developed a new 'Public-Private Investment Program' that will set up funds to provide a market for the troubled loans and securities issued by banks over the past several years. 'The new Public-Private Investment Program will initially provide financing for US$500 billion dollars with the potential to expand up to one trillion dollars over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system,' Mr Geithner pointed out.
Govt won't take all the risk 'Our judgment is that the best way to get through this is if we can work with the markets,' Mr Geithner said. 'We don't want the government to assume all the risk. We want the private sector to work with us.' Outlined last month, Mr Geithner plan calls for investing US$500 billion dollars in soaking up the banks' troubled loans and securities. The government-private sector initiative could end up absorbing as much as US$1 trillion. The US administration will sink around US$100 billion into the latest initiative, with the Federal Reserve and the Federal Deposit Insurance Corporation also participating. To encourage investors to buy those assets, the US government will offer lucrative subsidies and shoulder much of the risk. The Treasury also believes participants in the program shouldn't be subject to executive-pay rules imposed by Congress when it authorized its US$700 billion bailout bill and its US$787 billion stimulus package. Mr Geithner's plan will supplement earlier measures taken by the government to ease the credit crunch, including boosting consumer spending and helping homeowners facing foreclosure. -- AP
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