Lack Of TARP-2 Details Pushes Dow Down
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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