George S. May Business Blog

Breaking details of Geithner’s bank bailout plan; a first look before he releases it tommorow

At 11am tomorrow morning, Timothy Geithner is set to unveil his much anticipated bank bailout plan. As information slowly leaks out, I wanted to give a run down of what we think we know about the plan so far.

Geithner’s bank bailout plan should include:

Establishing an aggregator bank to buy up somewhere in the range of $500 billion, possibly more, in toxic assets. Now, we aren’t exactly sure how they plan to do this, but the idea is to not put all tax payer money behind this.

An expanded TALF. That’s what they use for consumer credit.  Its will purchase commercial and private label mortgage backed securities using funds from the TARP and the Feds balance sheet

A foreclosure mitigation sheet that will bring together ideas for private sector-Congress set-administration.

Expanded asset insurance, what already has been received by Bank of America and Citigroup, to other banks in need.

A uniformed stress test to evaluate all banks, by their primary regulators, and figure out how much capital they need.

As more details emerge, I will definitely post them up, but for now, the question is, with what we know of the plan, with solve the core problem? The issue in the past has been that banks haven’t wanted to sell because they don’t want to take such a low mark as it causes a sort of death spiral in their capital ratios. So now that there is this aggregator bank that is willing to buy, are the banks going to be willing to sell?

I tend to think they will. Everyone is aware of those problems; they have been for quite some time now. The fact is, we need a plan that will balance the interests of the banks and the tax payers as well as the overall economy, and this does. Is it the best possible plan for either side? No, I don’t believe so. But is it a solution that caters to both parties? Yes, and frankly it may be a good a plan as we are going to get right now.

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