US Treasury Secretary Timothy Geithner has announced a revamped programme to stabilise the US financial system. It includes an initial fund of $500 billion to absorb toxic assets.
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 repossessions and provide new capital for banks.
Initial stock market reaction was negative, however, with the Dow Jones plunging 3.5% shortly after the announcement.
Geithner said the plan would 'bring the full force of the US 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, with the potential to expand up to $1 trillion, to help cleanse the banking system of toxic assets linked to property. This will serve the role of a '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. The Treasury and Federal Reserve will also expand a programme to boost lending for mortgages and other consumer and business loans to up to $1 trillion.
Geithner acknowledged that deep scepticism had developed over the fairness and efficiency of a $700 billion bank bail-out programme approved by Congress in October. He said leaders of some financial institutions that have received money had squandered the good faith that is needed to make the bank rescue effective.
'The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust,' he said.
Senate backs stimulus plan
The US Senate has passed an $838 billion economic stimulus plan, triggering difficult compromise negotiations with the House of Representatives which are aimed at sending President Barack Obama a final bill this week.
Senators voted 61-37 to approve the package, setting the stage for talks aimed at reconciling differences between their legislation and the House of Representatives' rival $819 billion plan.
Leaders of the Democratic majorities in both chambers have said they will work as long as it takes to get a final package to Obama, who has urged lawmakers to meet a self-imposed February 16 deadline for doing so.
