"We're going to move quickly to lay out a new financing program to deal with these legacy assets,” Geithner said during a meeting of Group of 20 finance ministers in Horsham, England. “We have and expect to see a lot of support for this program” among potential buyers of the assets, he said.
Geithner disappointed investors and was criticized by U.S. lawmakers including Senator Kent Conrad of North Dakota, chairman of the budget committee, for outlining plans to address toxic assets without explaining how they will work. The Standard & Poor's 500 Stock Index slumped 4.9 percent on Feb. 10, the day Geithner unveiled the plan.
Geithner's program has three main elements: Injecting fresh government capital into some of the country’s biggest financial institutions; establishing a public-private partnership to handle as much as $1 trillion of banks’ bad assets; and starting a credit facility with the Federal Reserve of as much as $1 trillion to promote lending to consumers and businesses.
The Treasury hopes to unfreeze credit markets by providing new incentives to banks and investors to resume trading in mortgage securities and other troubled assets. U.S. regulators are conducting a new series of examinations to make sure banks have enough capital to accept losses when selling these assets, while also planning to provide government financing to the investors who might buy them.
Geithner said the Treasury already is well on its way to starting “a dramatic lending program to help securities markets get flowing again.” He said regulators will ensure banks have a “backstop of capital” to make sure they can “do what’s necessary” to restore lending.
The Treasury also is looking to a new program, launched in partnership with the Federal Reserve, to encourage banks to make new loans. The Term Asset-Backed Securities Loan Facility is intended to revive the market for securities backed by consumer loans, yet it may start with just a handful of deals, according to participants in the preparations.