Treasury Secretary Timothy Geithner on Tuesday unveiled the Obama administration's second front in its battle for economic recovery — a plan aimed at soaking up $500 billion in toxic loans to jump-start stalled bank lending.
In an announcement, Geithner said the plan was designed to raise private funds, as well as use government money, to encourage investors to buy the assets. The action is a departure from the Bush administration's initial response to the financial meltdown, which Geithner praised while saying that it did not go far enough and suffered from a lack of transparency.
Americans "have lost faith in the leaders of some of our financial institutions," he said, while they are "skeptical that their government has used taxpayers' money in ways that will benefit them."
The White House under both Presidents Bush and Obama has come under fire for failing to provide a detailed accounting of how previous installments of the TARP money have been spent.
"This has to change. To get credit flowing again, to restore confidence in our markets and to restore the faith of the American people, we are going to fundamentally reshape our program to repair the financial system," Geithner said.
The plan represented one of "two fronts" — along with the more than $800 billion stimulus plan — in the "battle for economic recovery," he said.
The Treasury Department's strategy draws on the second installment of the $700 billion financial rescue package known as the Troubled Asset Relief Program, which was passed by Congress in the waning days of the Bush administration.
It will support $1 trillion in new lending through an expanded Federal Reserve program, he said.
"Unless we restore credit, the recession will be even longer and deeper," Geithner warned.
At least $50 billion would be set aside to help homeowners deal with rising foreclosures, he said. Details on the housing measures were postponed for an announcement expected in the next two weeks.
The Treasury secretary outlined a multitiered plan to increase transparency by publishing information on the Internet that would let Americans see "whether boards of directors are being responsible with the taxpayer dollars and how they are compensating their executives."
The program would provide public funds to banks as a short-term "bridge to private capital," he said.
"The capital will come with conditions to help ensure that every dollar of taxpayer assistance is being used to generate a level of lending greater than what would have been possible in the absence of government support," he emphasized.
At a White House news conference Monday night, Obama depicted the bank bailout effort as a template for "restoring market confidence."
"The credit crisis is real, and it's not over," Obama said.
He also did not rule out seeking additional TARP funding. "We don't know yet if we'll need additional money, or how much additional money we'll need," Obama said.
The Geithner announcement came on the same day the Senate passed the stimulus plan. Obama has lobbied hard for the measure, saying delay would lead to catastrophe. The House and Senate must now work out differences between their differing versions of the bill.
Also on Tuesday, Federal Reserve Chairman Ben Bernanke told Congress that the flurry of programs to unclog the credit markets were beginning to work.
"Our lending to financial institutions, together with action taken by other agencies, has helped to relax the severe liquidity strains," he told the House Financial Services Committee.
With material from The Associated Press