Wall Street, Congress Unsure About TARP Plan

Treasury Secretary Timothy Geithner has outlined plans to increase consumer lending and remove toxic assets from banks' balance sheets. But analysts said they were disappointed by the lack of details in the plan. The much-anticipated speech left out how much the plan would cost.

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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.

It was another bad day in the financial world yesterday. We learned the U.S. government's new plan for the banking system will be hugely expensive, but it's more an outline than a polished proposal. In a moment we'll hear about efforts to get private investors involved in the bank rescue.

But first we look at Treasury Secretary Timothy Geithner's speech yesterday. It left out important details, like the overall price tag. Investor reaction was swift and sour. The Dow Jones Industrial Average fell more than 380 points.

NPR's Scott Horsley reports.

SCOTT HORSLEY: The stock market began dropping right around the time Secretary Geithner started talking about the new plan. And later in the day Geithner encountered similar skepticism when he went to brief the Senate Banking Committee on Capitol Hill.

After several hours of testimony, Tennessee Republican Bob Corker said he still didn't have a clear idea of how the government planned to prop up the banking system. Corker said the long-awaited stability plan had not lived up to its billing.

Senator BOB CORKER (Republican, Tennessee): I think the White House and you ought to communicate, and that the president said you would be very clear and there would be specific plans. Today we lost probably about a trillion dollars in the market as people look for those very clear and specific plans and instead heard guidelines and some platitudes.

HORSLEY: Lawmakers are still smarting from the last bank rescue plan, which cost taxpayers several hundred billion dollars but failed to thaw the frozen credit market. New Jersey Democrat Bob Menendez said he won't go down that road again.

Senator BOB MENENDEZ (Democrat, New Jersey): I'm looking for a plan that ultimately prioritizes Main Street at the end of the day. I'm looking for a plan that helps put cash in the pockets of people who are going to spend them and businesses that are going to create jobs. And I'm looking for a plan that ultimately ensures that we're going to save a lot more people in their homes.

HORSLEY: The general public is also suspicious of any new bank bailout. A Gallup poll last month found only one-in-five people willing to commit additional to the financial system without new assurances. In Elkhart, Indiana this week, Mmoja Ajabu told President Obama the government should stop trying to help banks and start helping homeowners struggling to pay their mortgage.

Mr. MMOJA AJABU (Elkhart, Indiana Resident): To try to give it to a bank and give a low interest rate, and the person whose home is being foreclosed on don't have a job, don't help anybody. It's a sale that nobody can take advantage of because you ain't got no money.

(Soundbite of applause)

HORSLEY: Confronting all this pushback, Geithner said the government is working on a plan to prevent foreclosures but won't have details for several more weeks. He also said he understands the public's mistrust, given the mistakes of bank bailouts in the past.

Secretary TIMOTHY GEITHNER (Department of Treasury): Our challenge is much greater today because the American people have lost faith in the leaders of some of our financial institutions and they are skeptical that their government has used taxpayers' money in ways that will benefit them. This has to change.

HORSLEY: Under the plan Geithner did unveil yesterday, the government would pump more taxpayer dollars into the banking system, expand a program to program to promote consumer lending and create the public/private investment fund to buy up troubled assets now weighing on banks' balance sheets.

He warned that the rescue effort will be costly, time consuming and risky. But he also warned a complete collapse of the financial system would be even worse.

Sec. GEITHNER: Unless we restore the flow of credit, the recession will be deeper and longer, causing even more damage to families and businesses across the country.

HORSLEY: Geithner said banks that receive taxpayer assistance under the new plan will have to tell the government how they plan to increase lending and provide regular updates. But he also said the government should not try to micromanage banks, even in the face of public outrage over lavish perks and bonuses.

Sec. GEITHNER: I am deeply offended by many of the judgments they've made. It makes our job together much, much harder. But there is an important offsetting obligation we have, not to create the prospect that the government is going to come in and make these decisions for institutions that are - we want to remain in private hands and we want private capital to come replace our investments as soon as possible.

HORSLEY: President Obama downplayed the stock market's chilly initial reaction to the new plan. He told ABC's Nightline that Wall Street had just been looking for an easy way out of the financial mess. And he added, there is no easy way.

Scott Horsley, 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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