US to Spend USD2,000bn to Revive Financial Markets
WASHINGTON (ICIS news)--The US government said on Tuesday it will spend as much as $2,000bn (€1,540bn) in loans, financial guarantees and investments to restore liquidity to US banks and free up commercial and consumer credit.
Treasury Secretary Timothy Geithner announced the massive new federal economic rescue effort - formally titled the Financial Stability Plan - to “help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses”.
In outlining the biggest federal spending programme since World War II, Geithner said the administration of President Barack Obama is “fundamentally reshaping the government’s programme to repair the financial system”.
As part of a four-part plan, Geithner said the federal government will provide up to $1,000bn in financing capacity in a new Public-Private Investment Fund to take over non-performing mortgage loans and other troubled assets “now burdening many financial institutions”.
Another $1,000bn will be made available to support what Geithner called a Consumer and Business Lending Initiative to “restart securitisation markets for sound loans made to consumers and businesses, large and small”.
This effort, he said, will “target the markets for small business lending, student loans, consumer and auto finance and commercial mortgages”.
Although those two core elements of the Financial Stability Plan may themselves require funding of up to $2,000bn, Geithner said additional federal spending may be necessary.
To fight World War II, the US spent something more than $5,000bn in inflation-adjusted dollars ($288bn in 1945 dollars).
The Financial Stability Plan announced by Geithner is separate from and in addition to the roughly $800bn economic stimulus bill under consideration in the US Congress.
A third and separate part of Geithner's plan will provide capital support for at-risk banks, either as direct federal investments in troubled financial institutions or as guarantees for private investment.
Geithner said major banks will be required to undergo a financial stress test to determine their true value. “Those institutions that need additional capital will be able to access a new funding mechanism that uses funds from the Treasury as a bridge to private capital,” Geithner said.
Federal funding to shore up shaky banks will placed in a new Financial Stability Trust.
Lastly, Geithner said the fourth part of the overall economic rescue plan - but one yet to be fully developed - will be aimed at the housing market crisis.
“Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates,” he said, promising that “we will announce the details of this plan in the next few weeks.”
In all, Geithner said, the financial rescue plan is going to cost a lot of money.
“Many of the programs I’ve discussed involve large numbers,” he said. “But it is important to recognize that these programs involve loans, guarantees and investments with terms and conditions that protect taxpayers and help compensate the government for risk.”
“But I want to be candid,” Geithner added, “this strategy will cost money, involve risk and take time.”
However, he added, “As costly as this effort may be, we know that the cost of a complete collapse of our financial system would be incalculable.”
Treasury Secretary Timothy Geithner announced the massive new federal economic rescue effort - formally titled the Financial Stability Plan - to “help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses”.
In outlining the biggest federal spending programme since World War II, Geithner said the administration of President Barack Obama is “fundamentally reshaping the government’s programme to repair the financial system”.
As part of a four-part plan, Geithner said the federal government will provide up to $1,000bn in financing capacity in a new Public-Private Investment Fund to take over non-performing mortgage loans and other troubled assets “now burdening many financial institutions”.
Another $1,000bn will be made available to support what Geithner called a Consumer and Business Lending Initiative to “restart securitisation markets for sound loans made to consumers and businesses, large and small”.
This effort, he said, will “target the markets for small business lending, student loans, consumer and auto finance and commercial mortgages”.
Although those two core elements of the Financial Stability Plan may themselves require funding of up to $2,000bn, Geithner said additional federal spending may be necessary.
To fight World War II, the US spent something more than $5,000bn in inflation-adjusted dollars ($288bn in 1945 dollars).
The Financial Stability Plan announced by Geithner is separate from and in addition to the roughly $800bn economic stimulus bill under consideration in the US Congress.
A third and separate part of Geithner's plan will provide capital support for at-risk banks, either as direct federal investments in troubled financial institutions or as guarantees for private investment.
Geithner said major banks will be required to undergo a financial stress test to determine their true value. “Those institutions that need additional capital will be able to access a new funding mechanism that uses funds from the Treasury as a bridge to private capital,” Geithner said.
Federal funding to shore up shaky banks will placed in a new Financial Stability Trust.
Lastly, Geithner said the fourth part of the overall economic rescue plan - but one yet to be fully developed - will be aimed at the housing market crisis.
“Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates,” he said, promising that “we will announce the details of this plan in the next few weeks.”
In all, Geithner said, the financial rescue plan is going to cost a lot of money.
“Many of the programs I’ve discussed involve large numbers,” he said. “But it is important to recognize that these programs involve loans, guarantees and investments with terms and conditions that protect taxpayers and help compensate the government for risk.”
“But I want to be candid,” Geithner added, “this strategy will cost money, involve risk and take time.”
However, he added, “As costly as this effort may be, we know that the cost of a complete collapse of our financial system would be incalculable.”
source: www.ICIS.com
