Treasury Announces New TARP Rules Tuesday

The Obama administration is ready to reveal a revamped federal financial bailout program. Treasury Secretary Timothy Geithner on Tuesday outlines details of a plan that officials say will place more strings on banks getting a boost and dramatically increase loans made available to buy homes and cars and pay for college.

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RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

LINDA WERTHEIMER, host:

And I'm Linda Wertheimer.

President Obama has said that fixing the banking system is second only to job creation on his economic agenda. And the plans of the banking fix is to be unveiled today by Treasury Secretary Timothy Geithner. Last night, in his first primetime news conference, the president said this about his goals:

President BARACK OBAMA: One of my bottom lines is whether or not credit is flowing to the people who need it. Is it flowing it banks - excuse me - is it flowing to businesses, large and small? Is it flowing to consumers? Are they able to operate in ways that translate into jobs and economic growth on Main Street?

WERTHEIMER: For more on what we expect to hear about the plan today, we turn to NPR's Scott Horsley. Scott, this is the second half of the financial rescue effort. It began last fall at the onset of the crisis. But the Obama administration wants to do it differently from the Bush administration. Different how?

SCOTT HORSLEY: That's right, Linda. They promised this will be more consistent and transparent than the halting rescue efforts that we've seen up until now. While those efforts were successful in heading off a complete collapse of the financial system, the Obama administration says they didn't inspire the kind of confidence that's needed to get credit flowing again.

Now, it's not clear how much detail Secretary Geithner is going to offer this morning. Some parts of the plan may be rolled out later. But ultimately we expect the administration will do four things: provide some help to at-risk homeowners - because you'll remember it was foreclosures that started this whole mess; secondly, pump more money into the banks; a third, expand a government effort to encourage consumer credit; and finally, do something about those so-called toxic assets that have been gumming up the banks' balance sheets and making it harder for them to lend money.

WERTHEIMER: Secretary Geithner was originally going to give this speech yesterday. I guess he had to get out of the way for President Obama.

HORSLEY: That's right. The administration has called this bank rescue a second leg of its economic stool, and the challenge has been at that first leg, the economic stimulus package, has been so wobbly that it was hard for the president's team to move onto the others.

Last night, of course, the stimulus did clear a crucial hurdle in the Senate and so now the administration's ready to talk about step two. Remember, though, for all the teeth gnashing over the stimulus, that was the relatively easy part. With this bank rescue, there aren't going to be shiny new roads or millions of new jobs to point to, so it's likely to be a tougher sell.

WERTHEIMER: Speaking of selling, the president was in Indiana yesterday and he's in Florida today, Illinois on Thursday, trying to sell the stimulus package. So far, Scott, he seems to be pretty tough on the hits his package has taken from opponents.

HORSLEY: And he's gotten tougher in recent days. He conceded yesterday, in Elkhart, Indiana, that the stimulus bill that its current form is not perfect. But he says it's much better than doing nothing. He says it will create or save three or four million jobs and that the alternative is a downward spiral and even more layoffs.

He's, of course, making that pitch in places like Elkhart and Fort Myers, Florida, which had been very hard hit. And there's a new Pew research poll showing a majority of Americans do support the stimulus package; a slightly bigger majority support the president himself.

This is a case where the White House insists the public is ahead of Congress. White House Spokesman Robert Gibbs said yesterday, when the president makes these sales trips, he's not trying to bring Washington wisdom to Indiana or Florida but to bring that local experience of the downturn back to Washington with him.

WERTHEIMER: Now, as you said, the stimulus cleared a key hurdle in the Senate last night. Senate passage is expected today. So what's next?

HORSLEY: Well, there are some still sizeable differences between the House and Senate version to work out, assuming the Senate does make its passage today. So far the White House has downplayed the differences, saying there's, you know, about 90 percent overlap between the bills.

But the president said yesterday in Elkhart, he would like to see money that the Senate took out of the measure for modernizing school buildings, put back in. Up until now, he's avoided talked about specifics, but perhaps they now said we've got a bill, let's work in conference to shape it a little bit.

WERTHEIMER: NPR's Scott Horsley. Scott, thank you very much.

HORSLEY: My pleasure, Linda.

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Government To Unveil New TARP Rules

Monday was supposed to be the day the Treasury Department announced its plan for spending $350 billion — the second half of the bailout package known as the Troubled Asset Relief Program, or TARP.

But that was put off as the administration focuses on an even bigger pot of money: President Obama will put the spotlight on the roughly $800 billion stimulus package Monday night during his first White House press conference.

Instead, Treasury Secretary Timothy Geithner will make his announcement about the future of TARP on Tuesday. John Ydstie talks to Melissa Block about the latest developments.

BLOCK: The Bush administration took a lot of heat for handing hundreds of billions of dollars in TARP money over to banks and other big companies. Is the Obama administration's approach going to be different?

YDSTIE: Well, administration officials hope it will be perceived as different. In fact, they're reportedly considering changing the name of the program from the Troubled Asset Relief Program to something else. That would be a shame, because under the Obama plan, the program might finally live up to its name. There's apparently going to be a renewed focus on relieving banks of those nasty mortgage-backed assets that have been dragging them down.

How is the Obama administration going to accomplish this without its becoming too complicated and expensive?

Officials are going to try to get at the problem in a couple of ways. Under one method, the government would not take the assets off the banks' books: It would just offer guarantees that would protect the banks that currently own the assets from really big losses. Actually, this strategy has already been used to prop up Bank of America and Citigroup.

Reports suggest that under a second method, the government would buy the toxic assets and put them in what's come to be called a "bad bank." This entity, also sometimes called an "aggregator bank," would hold the assets until the panic passes and people understand that maybe these assets do have some value. After all, many of the mortgages on which these securities are based are not going into foreclosure.

The Bush administration did not take this approach because it said there wasn't enough money in the TARP to do it. Is the Obama administration going to go back and ask Congress for more money?

Not anytime soon, given the anger in Congress over the use of the first half of the TARP. So, to get around that, the administration is going to try to get private investors to invest in this so-called bad bank.

But if investors don't want to buy these toxic assets from banks now, why would they invest in a bad bank that owns them?

Well, what the government is likely to do is guarantee investors in the bad bank against big losses. So if you invest in the bad bank, you could make big gains if the troubled mortgage-backed securities turn out to be more valuable than people think. But if they turn out to be worth less, the government will protect you against big losses.

But there's still the issue of how much the government should pay for these toxic assets. It wants to avoid overpaying, so that taxpayers don't lose too much. But it also wants to avoid paying too little — at the risk of pushing the banks that currently own these assets into insolvency.

What about all those homeowners facing foreclosure? Is there anything for them in this plan?

This plan will have at least $50 billion dedicated to that cause.

But like the Bush TARP, this plan will also continue to inject billions of dollars into banks. The new plan will include tougher restrictions on executive compensation, more oversight and a greater focus on ways in which taxpayers might make money on the investment in banks.

But there's still the issue of how much the government should pay for these toxic assets. It wants to avoid overpaying, so that taxpayers don't lose too much, but it also wants to avoid paying too little and then pushing the banks that own them now into insolvency.

What about all those homeowners facing foreclosures — is there anything for them in this plan?

This plan will have at least $50 billion dedicated to that cause.

But like the Bush TARP, this plan will also continue to inject billions of dollars in capital into banks. There will be tougher restrictions on executive compensation, more oversight and more attention given to ways taxpayers may make money on these investments in banks.

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