New Treasury plan aims to trigger $2 trillion to markets
WASHINGTON -- Treasury Secretary Timothy Geithner unveiled a sweeping plan Tuesday to shore up the nation's troubled financial system.
It is designed to deliver as much as $2 trillion to troubled financial markets by having the government partner with the private sector to buy troubled assets from lenders, make more bank capital injections and expand a Federal Reserve lending program.
"Right now critical parts of our financial system are damaged," Geithner said at a Treasury Department press conference, warning that the nation faces the most serious economic crisis since the Great Depression. "Instead of catalyzing recovery, the financial system is working against recovery, and that's the dangerous dynamic we need to change."
The plan is just one part of overall efforts by the Obama administration, including a roughly $800 billion financial stimulus bill passed by the Senate Tuesday, to tackle the loss of millions of jobs, falling home and asset prices and a historic contraction in credit markets.
"It is essential for every American to understand that the battle for economic recovery must be fought on two fronts," Geithner said. "We have to both jump-start job creation and private investment and we must get credit flowing again to businesses and families."
Markets reacted negatively to the plan, however, with the Dow Jones industrial avereage down nearly 400 points in afternoon trading as investors and market analysts worried about the lack of specifcs in the broad proposal.
"The Financial Stability Plan outlined by Treasury Secretary Geithner this morning ... is obviously a work that is still very much a 'work in progress,'" economic consulting firm Stone and McCarthy said in a note to clients "It is quite possible that it may not be a finished product for an extended period of time."
Geithner's plan attacks the credit crisis on several fronts. First, the Treasury Department would use part of the $350 billion remaining from last year's $700 billion financial rescue fund as seed money, to induce the private sector to buy bad assets from banks. The government will create a public-private entity that could buy $500 billion in toxic assets, and could be expanded to a trillion dollars. Treasury has not yet settled on a final design for the program.
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