Latest toxic-asset purchase program hits $1 trillion

Investors will be listening closely to details of the $1 trillion toxic asset-purchase program to be announced Monday as the Obama administration seeks to provide enough information to satisfy markets and avoid the kind of stock meltdown seen last month.

Then, Treasury Secretary Timothy Geithner disappointed by giving only broad outlines of the government's approach to kick-start lending and the overall economy. With the sharp market plunge that followed Geithner's speech on Feb. 10 still a fresh memory, administration officials Sunday sought to temper expectations for Monday's announcement. "Ridding bank balance sheets of problem assets is the next step in that process of fixing the financial system, but it alone won't solve the credit problem," Treasury Department spokesman Andrew Williams says.

First Trust Advisors chief economist Brian Wesbury says markets have been rising the past few weeks partly on expectations of a government plan to remove the bad assets from banks.

"If their proposal is seen as weak or inefficient or unworkable, then we could lose what we've gained pretty quickly," he says.

Details of the Public-Private Investment Program were still being worked out Sunday.

Under part of the program, investors will borrow government funds that they will supplement with their money. The investors, which will likely include hedge funds, will then buy assets valued up to $1 trillion. The assets include loans and securities, many tied to subprime mortgages, for which there currently is no market and which are clogging up banks' balance sheets and restricting lending.

Investors will compete for the government loans in auctions, which will set the interest rate for the loans. The program will use approximately $100 billion from the $700 billion financial rescue plan passed by Congress last year. Other money will come from the Fed and the Federal Deposit Insurance Corp.

Geithner's announcement comes amid public furor that firms such as AIG that have received taxpayer money have been paying bonuses. A movement is underway in Congress to tax bonuses given by firms receiving government aid.

There's concern that deep government involvement on compensation and other issues may scare some investors away from the toxic-asset program. A challenge for the administration is striking a balance between giving sufficient incentives to lure investors while protecting taxpayers from excessive risks.

Administration officials said Sunday they think companies will buy in.

"People want to participate if there's a business reason," White House economic adviser Austan Goolsbee said on CBS's Face the Nation. Firms in the program will "be treated totally differently than … AIG or Fannie Mae, where they are only in business because the government saved them."