The U.S. Government plans to create funds of at least $500 billion in private money, along with another $1 trillion to aid in the creation of a Financial Stability Plan. A recent announcement from Treasury Secretary Tim Geithner noted that by creating these funds, the government will be able to recapitalize banks and support consumer and business lending.
According to Geithner, the Treasury will partner up with the Fed as well as the Federal Deposit Insurance Corporation to create a $500 billion investment fund made up of private sector funds and a fraction of the TARP funds. This Public-Private Investment Fund will work to buy toxic assets and allow the private sector to determine prices for troubled assets. To create the remaining $1 trillion in capital, TALF will take $100 billion from the Treasury and leverage it in what is called the Consumer and Business Lending Initiative.
Another major part of the plan is the Financial Stability Trust, which includes a comprehensive stress test that major banks will be required to undergo to show they can survive the economic downturn. In addition, this trust will include increased balance sheet transparency, and a capital assistance program for major banks. The remaining 3 parts of the plan include the Transparency and Accountability Agenda, Affordable Housing Support and Foreclosure Prevention Plan, and Small Business and Community Lending Initiative.
Geithner notes that by implementing this plan, more jobs and private investment opportunities will be created – and hopefully in time, credit will begin flowing once again to business and families.
While this does nothing for the rising mortgage crisis and lack of American savings, it is a step towards adding liquidity where it is most needed. Do you believe these plans and committees will help solve the problem, or only make tracking tax-payer money more difficult?