US unveils plan to buy toxic assets

23 March 2009

The US revealed details of a $500-billion plan to encourage private investors to buy up toxic assets. The plan will offer subsidies in the form of low-interest loans to private investors to encourage them to buy troubled mortgages and other doubtful debts.

Writing himself in The Wall Street Journal, US treasury secretary Timothy Geithner said the measures were needed to help the financial system recover. The plan will be formally launched later today.

Stock markets across the major economies, from Europe to Australia, surged on the information that the 'public-private investment programme' will facilitate the purchase from banks of the troubled mortgages and securities that have been at the root of the credit crisis.

It will initially provide financing for $500 billion of toxic assets, with the potential to expand up to $1 trillion. "Over time, by providing a market for these assets that does not now exist, this programme will help improve assets values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets," Geithner wrote.

He said that encouraging the private sector to take part would be better for the taxpayer as the risks of purchasing toxic assets would be shared. However, there are fears that Wall Street might be reluctant to work with the government after the backlash over bonuses at bailed-out firms like AIG.

'Toxic' sales
Under the plan, the US treasury will provide $75-$100 billion to seed the programme. The money would come from the $700-billion financial rescue fund Congress approved in October.