White House takes Banking Crisis

 

Tuesday, Mar 24,2009, 12:03:31 AM   Click:

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Source: Associated Press Worldstream
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WASHINGTON_The Obama administration on Monday launched its much-anticipated assault on the worst U.S. banking crisis in 70 years and a freezing of credit that grows ever deeper understanding of the economy into recession.

Treasury Secretary Timothy Geithner's bank plan the use of low-interest loans and $ 75 billion to $ 100 billion of the rest of the government, 700 billion dollars in bailout funds from the private sector to encourage investors to buy first buy about $ 500 billion in toxic assets _ the take in the books of the nation banks.

The administration also said the first effort could increase by $ 1 trillion that the program is successful in attacking the problem that has choked bank lending to consumers and businesses, exacerbating the deterioration of global slowdown.

In a lengthy fact sheet, the administration has said it expects the participation of a wide range of sources, ranging from pension funds to insurance companies and other long-term investors.

The U.S. Federal Reserve, the U.S. central bank, and the Federal Deposit Insurance Corp., an independent agency of government that supports the bank deposits, has large role in the establishment of the necessary cash.

But the program in May to face stiff resistance as he made his debut after a week of Wall Street-bashing in Congress, where legislators were outraged over troubled insurance company American International Group Inc to pay 165 million dollars in bonuses after taking over $ 170 billion in government rescue to stay afloat.

President Barack Obama, who expressed outrage about the payments, however, pointed out, opposition to an early adoption of the House of Representatives measure these bonuses to tax at 90 percent. In a CBS television interview broadcast Sunday, he questioned the bill for constitutional reasons.

Geithner, meanwhile, wrote Monday in the Wall Street Journal that the new Bank program to "solve the crisis as quickly and as efficiently as possible at the least cost to the taxpayer. ... You just have to hope for banks to those assets over time risks prolonging the crisis. "

The government is struggling since the credit crunch hit last fall to find a way to mollify the bad assets.


Geithner bank plan was designed to solve the difficult problems of how to price the bad bank assets while showing that the government has sufficient capital to make a difference.

The administration hopes that the market's reaction to this proposal is more favorable than the first Geithner outline of the reform on 10 February, when investors, upset by a lack of detail, sent the Dow Jones Industrial Average barrel that day.

European and Asian markets climbed Fortunately before the announcement Monday and Wall Street in a future open strongly.

To encourage investors to be more favorable, the government offers substantial financial enticements, to assume much of the financial risk to provide low-interest loans for the purchase of assets.

Some hedge funds and other investors have expressed their reluctance to participate in the new program, for fear that Congress will submit to what they see as severe restrictions on executive compensation.

Officials, however, insisted that they believe they have found the right combination to attract private investors and make a dent in what, according to some estimates, could be over $ 2 billion in difficulty on the assets of the banks books.

They said that the program has the ability to purchase $ 500 billion and perhaps more than $ 1 billion of loans in trouble, going back to the collapse of the housing boom and the wave of seizures.

But private analysts believe that with the $ 700 billion fund bailout almost exploited by capital injections for banks and provided vital to self and AIG, there are sufficient resources left to get the Purchase program launched assets.

Mark Zandi, economist at Moody's Economy.com, said that the Government will need another $ 400 billion to make a sufficient dent in the bad asset problem.

Administration officials have said they want to get the new program, successfully launched and how it is before deciding to ask Congress for more resources.

The hotel includes a space in its budget request to Congress last month for an additional $ 750 billion, more than double the rescue efforts, but many legislators have said that fatigue over bailout between voters dims the prospect of additional resources.

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AP economics writer Martin Crutsinger contributed to this report.



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