Government To Unveil New TARP Rules The Treasury Department plans to stretch the remaining money from the Troubled Assets Relief Fund by working with the private sector to buy bad assets from struggling banks. The government will announce Tuesday exactly how it will do this.
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Government To Unveil New TARP Rules

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Government To Unveil New TARP Rules

Government To Unveil New TARP Rules

Government To Unveil New TARP Rules

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  • <iframe src="https://www.npr.org/player/embed/100468815/100468801" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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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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