Treasury Presses Ahead With Plan For Toxic Assets

David Cho
Washington Post
Sunday, March 22, 2009

The Treasury Department will unveil the next step in its financial rescue efforts tomorrow, announcing that it intends to create a government body, called the Public Investment Corp., to finance the purchase of as much as $1 trillion in soured loans and toxic assets from ailing banks, according to sources.

The plan calls for the new entity to combine its resources with the Federal Deposit Insurance Corp., the Federal Reserve and private investors to buy those loans and other assets. But the government will put far more money into the deals and take on more risk than the investors, which could include hedge funds, private-equity firms, pension funds and foreign investors with U.S. headquarters, the sources said. The corporation will be funded with $75 billion to $100 billion from the $700 billion financial rescue package.

Key details of the toxic asset purchasing program are not yet finalized, said officials in contact with the Treasury. Some expressed concern that the markets would expect too much out of Monday’s announcement. When Treasury Secretary Timothy F. Geithner first sketched out the administration’s rescue plan last month, he was criticized on Wall Street and on Capitol Hill for being too vague and creating uncertainty in the markets.

The Obama administration also risks a backlash from lawmakers and ordinary Americans who expressed outrage over $165 million in bonus payments by American International Group to employees of its most troubled unit — despite the firm receiving more than $170 billion in federal aid.

White House officials said they are seeking a solution to the AIG bonus controversy in light of a bill that the House passed Thursday that would impose punitive taxes on bonus payments at all financial firms. Industry officials say the House measure would scare off many banks from taking government aid because the majority of their employees receive bonuses. The banks could still survive, but without federal assistance they would not have enough capital to restart lending, which is considered central to reviving the economy.

Full article here

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