The Bush Administration’s TARP initiative proved ineffective in revitalizing our nations financial instruments; a bold new plan offered by the Obama Administration signals that the government’s previous financial commitments were not enough. Will this new plan, with commitments exceeding $2 trillion, and the Economic Stimulus Plan with a price tag of as much as $838 billion, prove effective in stabilizing a weak economy on the brink of collapse.
“The Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts.”
U.S. Treasury Department Office of Public Affairs, 2009
“This new financial stability plan will take a comprehensive approach. The Department of the Treasury, the Federal Reserve, the FDIC, and all of the financial agencies in our country will 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.”
Tim Geithner, U.S. Treasury Secretary, 2/10/2009
Timothy Geithner outlined details of Tarp II today, a plan to spend the remaining $350 billion in TARP funds to jumpstart programs that could end up costing taxpayers as much as $2 trillion. The new plan promises more regulation and transparency, and consists of three main steps:
1. A measure that requires banks to undergo an all-inclusive “stress test” evaluating a bank’s current standing; the government will provide capital support to unhealthy banks so that they can stay afloat and continue lending. *Banks with $100 assets exceeding $100 billion are required to participate in the evaluation process.
2. The Federal Reserve, FDIC and the private sector will establish a Public-Private Investment Fund (PPIF), which will use government capital and financing to investment in bad assets (the creation of a “bad bank”) valued by the private sector. Initially, the effort will facilitate about $500 billion in lending capacity; Geithner mentioned that up to $1 trillion in lending capacity may be needed.
3. The Treasury and Federal Reserve will commit up to $1 trillion dollars to facilitate consumer and business lending, which will “kick-start” the secondary mortgage markets and lower borrowing costs. A program that will focus on helping the millions of consumers that have already lost their homes, and the millions more that struggle to meet their current financial commitments. This program will operate on resources already committed by the Emergency Economic Stabilization Act (2008).
Photo Credit: New York Times
…homeowners around the country are seeing the value of their homes fall because of forces they did not create and cannot control. This crisis in housing has had devastating consequences, and our government should have moved more forcefully to help contain the damage. Geithner, 2/10/2009
Financial Stability Plan Overview
1. Financial Stability Trust
- A Comprehensive Test for Major Banks
- Increased Balance Sheet Transparency and Disclosure
- Capital Assistance Program
2. Public-Private Investment Fund ($500 Billion – $1 Trillion)
3. Consumer and Business Lending Initiative (Up to $1 trillion)
4. Transparency and Accountability Agenda – Including Dividend Limitation
5. Affordable Housing Support and Foreclosure Prevention Plan
6. A Small Business and Community Lending Initiative
Financial Stability Plan Fact Sheet
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