US Treasury unveils 'White Paper' on buying toxic assets

24 March 2009

US Treasury Secretary Timothy Geithner on Monday unveiled a ''White Paper'' on public-private partnership plan for buying the bad loans that have wrecked US banks and disrupted normal lending.

To clear the toxic assets off the books of US financial institutions the government will pump in all of the money that is necessary to make the programme work, Geithner said at a financial conference sponsored by The Wall Street Journal newspaper.

"As a critical part of this programme, we are making it clear that we are willing to provide capital to the system," said Geithner, adding that it will take several weeks for his plan to be properly evaluated by financial markets.

"I am very confident that that (nationalisation) would leave us in the position where the government is taking risks it does not understand, cannot manage effectively, highly vulnerable to overpaying for those assets, and charges that we are giving a disguised subsidy (to banks) that is unjustified," he said.

Under the new programme the Treasury, Federal Reserve and Federal Deposit Insurance Corp (FDIC) plan to work with private investors to try to restart a market for these troubled assets. The federal government will use as much as $100 billion in funds from the Troubled Asset Relief Program and capital from private investors in order to generate $500 billion in purchasing power to buy legacy assets, Treasury said. The programme could potentially expand to $1 trillion over time.

The administration needs to address two problems. First, banks are not lending because their balance sheets are weighed down by these deteriorating toxic assets. Second, the assets are tough to price because of currently depressed pricing levels.