Word: geithner
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...know those supersales at your local department store in which they offer great deals on a couple of things in the hopes of getting enough people in the door so they can move the crap too? That's sort of what the Treasury Department and Tim Geithner are doing with the bank plan that was rolled out on Monday...
...problem facing America's economy has always been how to sell the worst of the toxic assets that are clogging banks' balance sheets. Geithner and his aides at Treasury cleverly realized that the best approach was to offer great prices on some of the more attractive stuff and hope the garbage would move too. (See 25 people to blame for the financial crisis...
...Second, Geithner said the still-nascent Federal Reserve program launched last week to restart non-bank commercial lending [i.e., by helping investors buy securities backed by auto loans, credit card debt, etc.] would be expanded to provide funding for investors who want to buy certain kinds of mortgage-backed securities. The government's enthusiasm for the starter plan, known as "TALF," has outstripped market enthusiasm, but there is some life in it. The Federal Reserve has put up over a $1 trillion in potential lending already, though only $9 billion in deals have been done so far. Geithner...
...Lastly, Geithner got to the "Public Private Investment Fund" for the securitized assets now clogging the banks' books. The plan envisions creating five investment funds under five outside asset managers. Those managers will get dollar-for-dollar matching investments from the government to buy what were once triple-A rated toxic assets from the banks, and can apply for loans from the government to further leverage their purchases...
...part of the plan, an investor could put up $6, get matching investments from the Treasury for another $6, then obtain loan financing of $72 from the FDIC. This would allow the investor to purchase a security with an $84 auction price (and a face value of $100). Again, Geithner did not provide details on the terms of those loans...