Lack Of TARP-2 Details Pushes Dow Down

The Obama administration unveiled its overhaul of the financial rescue plan, but critical details were missing. Investors weren't pleased and the Dow Jones industrial average fell more than 300 points.

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MELISSA BLOCK, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block. It was eagerly anticipated, but when the Treasury secretary finally unveiled a new financial stability plan today, the disappointment was palpable. Stocks were down across board. The Dow fell more than 380 points. The plan for the second half of the old TARP program - the $700 billion appropriated by Congress - was short on details in some critical areas, as NPR's John Ydstie reports.

JOHN YDSTIE: The Obama administration was eager to leave behind the controversies that surrounded the Bush administration's handling of the first $350 billion in TARP funding. This morning, as he unveiled the new approach, Treasury Secretary Timothy Geithner criticized the previous administration's response as late, inadequate, and damaging to public confidence. And Geithner promised a new direction.

Secretary TIMOTHY GEITHNER (Department of the Treasury): 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.

YDSTIE: But two of the four main parts of the program build upon efforts begun by the Bush administration. The first involves the continuing effort to stabilize banks by providing government injections of capital, if necessary. Geithner said that will be preceded this time by an exhaustive government examination of the banks.

Mr. GEITHNER: We're going to require banking institutions to go through a carefully designed, comprehensive stress test. This borrows the medical term. We want their balance sheets cleaner and stronger. And we're going to help this process by providing a new program of capital support for those institutions that need it.

YDSTIE: Financial aid for banks who need it will be on tougher terms than under the Bush administration - including limits on executive compensation and dividends, announced last week. Geithner and the Obama economic team have also decided to boost lending through a Federal Reserve program begun under the Bush administration. Its acronym is T-A-L-F, TALF. And it's aimed at jump-starting the secondary market for consumer and auto financing, and student loans. Commercial real estate mortgages are being added to the mix, too. The program's total lending will jump from $200 billion to $1 trillion under the new plan.

But in the areas where the Obama administration will differ from the Bush-era TARP, the details are sketchy. In fact, details on the approach to helping homeowners avoid foreclosure have been delayed for several weeks. And the plan for handling toxic assets - those mortgage-backed securities that are dragging banks down - is a little more than a concept. Geithner said the government would partner with the private sector to encourage investors to buy the troubled assets, but it wasn't clear what form the partnership would take, or whether the government would need to provide insurance against losses, to lure private money into the game. In an interview after his speech on the financial network CNBC, Geithner was questioned about the lack of detail.

Unidentified Man: Have you made those choices yet?

Mr. GEITHNER: Steve, we're going to be very careful to get this right. And we're not going to put out details until we are confident that we've got the right structure that's going to achieve these objectives - to try and bring private capital in alongside government financing to help get these markets working again. As you know better than anybody, this is enormously complicated.

YDSTIE: But investors were unforgiving, and demonstrated that by selling off financial stocks.

John Ydstie, NPR News, Washington.

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Administration Outlines Bailout Spending Plan

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

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