February 10, 2009

US Treasury Secretary Timothy Geithner unveiled a stepped-up program Tuesday to stabilize the financial system including an initial fund of 500 billion dollars to absorb toxic assets.

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The plan includes a public-private partnership aimed at soaking up toxic assets clogging the financial system. It also includes new efforts to boost consumer lending, limit home foreclosures and provide new capital for banks.

Geithner said the plan would “bring the full force of the United States government to bear to strengthen our financial system so that we get the economy back on track.”

A key element will be a public-private investment fund started with 500 billion dollars “with the potential to expand up to one trillion dollars,” to help cleanse the banking system of toxic real-estate assets.

This will serve the role of an aggregator bank, or “bad bank” to help financial institutions value their mortgage securities and clean up their balance sheets.

A second element will include additional capital injections into banks.

“While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive ‘stress test’ will have access to a Treasury-provided ‘capital buffer’ to help absorb losses and serve as a bridge to receiving increased private capital,” the Treasury said.

Additionally, the Treasury and Federal Reserve will expand a program to boost lending for mortgages and other consumer and business loans to up to one trillion dollars.

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