Treasury Secretary Timothy Geithner outlined a massive $2 trillion plan today that he said is meant to stabilize the nation's banking sector and restore the public's faith in the government's ability to handle the crisis.
About an hour after the plan was announced, the Senate narrowly passed President Obama's $838 billion economic stimulus bill. The measure was approved by a vote of 61-37. At least 60 votes were needed to prevent Republicans from blocking the measure.
Geithner said the American public has lost confidence in bank CEOs and is "skeptical that their government has -- to this point -- used taxpayers' money in ways that will benefit them."
"This has to change," Geithner said as he unveiled a new plan to use up to $2 trillion of taxpayer and private funds to stabilize the banking sector.
The cost of this latest bailout effort by Treasury was much larger than most people were expecting. After months of numbingly large government bailouts, even $2 trillion had the ability to shock. In the minutes after Geithner's speech, the Dow Jones industrial average fell about 3.5 percent.
To put $2 trillion into perspective, consider this: That's enough money to outright buy 8 million homes at $250,000 each.
The plan released by Geithner, coupled with Obama's economic stimulus bill working its way through Congress, brings the cost of the administration's economic rescue efforts to nearly $3 trillion.
The latest plan will replace the highly criticized Troubled Asset Relief Program, known as TARP.
Geithner conceded there will be risks with such a gargantuan and untried plan.
"I want to be candid. This strategy will cost money, involve risk and take time," he said in a much anticipated speech.
"We'll have to try things that we never tried before and we'll make mistakes," Geithner said.
But the cost of complete collapse of the financial system "would be incalculable," he said.
Geithner promised that the Obama administration would take a different approach to the financial crisis. He said there will be more transparency and accountability than provided in the Bush administration.
The revised financial rescue plan will inject banks with fresh capital, work with the Federal Reserve to support an increase of $1 trillion in lending, provide incentives for private investors to work with the government to buy up the bad assets weighing down banks, and commit $50 billion to help struggling homeowners avoid foreclosure.
"When our government provides support to banks, it is not for the benefit of banks, it is for the businesses and families who depend on banks and for the benefit of the country," Geithner said.
Federal regulators will institute uniform standards to clean up banks, performing "stress tests" to assess the health of these banks. As Treasury has done in recent weeks, Geithner will seek to improve the transparency and accountability of the embattled plan by launching a Web site to show how government funds are being used, insisting that banks show that federal help is serving the purpose of the program by increasing the flow of credit, and limit executive compensation and lobbying from banks participating in the government plan.