George S. May Business Blog

Geithner unveils plan for “toxic” assets

The long awaited day where the Secretary of Treasury, Timothy Geithner, would finally unveil a plan to address the “toxic” assets on the books of our nation’s banks has finally arrived.

A summary from Bloomberg.com:

“The plan is aimed at financing as much as $1 trillion in purchases of illiquid real-estate assets, using $75 billion to $100 billion of the Treasury’s remaining bank-rescue funds. The Public-Private Investment Program will also rely on Federal Reserve financing and Federal Deposit Insurance Corp. debt guarantees, the Treasury said in a statement in Washington.”

An explanation, from Tim Geithner himself,

“It’s the next step in the series of efforts we’re taking to make sure the banking system is doing what it should do, which is provide credit for the economy. We’ve already taken a bunch of actions to help get mortgage interest rates down, to help millions of Americans refinance their homes to take advantage of lower interest rates. We’ve launched a very powerful small business lending program…Last week we launched a new program to get securities markets going again, we saw almost $9 billion in new in new issuance, more than we’ve seen in the past four months, that will bring interest rates down too. So, all of these things are designed to help get credit flowing again at lower costs to business and families across the country”.

Getihner, when asked if this was the “biggest piece of the pie” in compariason to the other plans instated to get America out of this recession:

“It’s not the biggest piece but it’s an important piece.”

Now, Americans must be patient. Because the plan relies on private investors stepping up, it may be weeks or months before it’s clear whether the approach will work. Regardless, Wall Street seemed enthused as it responded absolutely positively:

The Standard & Poor’s 500 Stock Index rose 4.4 percent to 802.43 at 12:42 p.m. in New York, and the S&P 500 Financials Index jumped 9.3 percent.

While the concern for most will be whether or not the plan will translate into a boost on Main Street, mine is not. What makes me worried, is when you look at the plan, while it is very investor friendly, my concern is that when Congress hears the tax payer only gets 50% of the upside but puts in 80% of the money, will their reaction be the same as it has been? See, the question of: who controls what, still remains. Treasury can come out with a plan that they feel will work, but who is to say that Congress won’t just come in and overrule it?

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