The US has unveiled its long-awaited plan to buy up toxic assets - using government funds, loans to investors and guarantees to attract private capital.
The cornerstone of the plan is a 'Public-Private Investment Program for Legacy Assets', funded with up to $100bn from the government - an idea that has generated praise and scepticism.
Officials said this approach would 'generate $500bn in purchasing power' and could expand to one trillion dollars.
The plan, the outlines of which were unveiled last month, is a key to helping the ailing banking system recover from massive losses suffered in the US real estate meltdown.
The US Treasury said the plan 'ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.'
Announcing the plan, Treasury Secretary Timothy Geithner insisted his job was to try to fix the financial system at least cost to the taxpayer.
The statement said that 'a broad array of investors are expected to participate' in the program including individual investors, pension plans, insurance companies and other long-term investors.
The Treasury and private capital will provide equity financing and the Federal Deposit Insurance Corp will provide a guarantee for debt financing, which will be used to buy up mortgages and mortgage securities that are frozen because of massive losses linked to the US housing meltdown.
The initiative will contain two elements, one for pools of mortgages to allow banks to sell these to investors; the second will be a fund directed by asset managers to allow public and private capital to buy distressed mortgage securities.
US President Barack Obama said today he was very confident that his administration's new plan would help thaw frozen credit markets currently hampering recovery.
'We believe this is one more element that is going to be absolutely critical in getting credit flowing again,' Mr Obama said.
