The head of the U.S. Treasury is making good on a promise to take billions worth of toxic assets off the books of U.S. banks.
In a Feb. 10 Reuters story carried by Businessworld , Treasury Secretary Timothy Geithner was set to lay out a rescue plan based on a mix of public and private funds to wipe clean $500 billion of such troubled assets.
While details were light, Reuters reported that sources said the plan would also extend a Federal Reserve program allowing the U.S. central bank to extend up to $1 trillion in loans.
But what was clear in the days following the announcement was that the U.S. had learned from the shocking failure of investment bank Lehman Brothers, which went under in September, marking the largest bankruptcy in U.S. history, and would not let other banks fail.
The plan also included a huge boost in the government’s stakes in one key bank, Citibank, bringing it up to a possible 36 percent, reports said.
Geither’s plan follows a Feb. 9 press conference where President Barack Obama told reporters that cleaning up banks’ balance sheets was a priority and didn’t rule out the possibility that it will take more money than the $700 billion Congress already has approved to complete the job, Reuters said.
“We don’t know yet whether we’re going to need additional money or how much additional money we’ll need until we see how successful we are at restoring a level of confidence in the marketplace,” Obama said.
Obama then called on Congress to speedily approve both Geithner’s plan and an economic stimulus package to complement the revamped bank-rescue proposals, Reuters said.
“If you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of,” Obama said. “This is not your ordinary, run-of-the-mill recession, we are going through the worst economic crisis since the Great Depression.”
Geithner, the former president of the New York Federal Reserve Bank, said banks will be closely monitored and tested.
“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 in remarks prepared for delivery after the release of the new measures, Reuters said.
This article was submitted by Kathleen O’Connor, a contributing writer for Biz2Credit. Biz2Credit is a small business marketplace that provides entrepreneurs with the latest industry news and financial advice. Send all questions to firstname.lastname@example.org.