Geithner Call for Private Cash to Buy Toxic Assets

The Evening Standard (London, England), March 23, 2009 | Go to article overview

Geithner Call for Private Cash to Buy Toxic Assets


Byline: HUGO DUNCAN

US Treasury Secretary Timothy Geithner today said that Washington could not fix the financial crisis alone and called on the private sector to help buy up to $1 trillion of toxic assets from banks.

He fleshed out plans to purge banks of troubled property-related loans and securities worth between $500 billion and $1 trillion in yet another attempt to drag the US economy out of recession.

The Treasury will initially put in $75 billion to $100 billion to kick-start the Public-Private Investment Programme which it hopes will attract investors including pensions funds, hedge funds and private-equity firms. Further funds would be raised by investors through cheap loans from the Federal Deposit Insurance Corp and Federal Reserve.

"Simply hoping for banks to work these assets off over time risks prolonging the crisis," Geithner wrote in the Wall Street Journal.

"Over time, by providing a market for these assets that does not now exist, this programme will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of the losses on bank balance sheets.

"The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury." The plan -- the latest to be launched since President Barack Obama took office in January -- was welcomed by the markets today. Shares in Asia rallied, led by banks and other financial stocks, and the FTSE 100 index was up 65.28 to 3,908.13 in London.

Matt Buckland, a dealer at CMC Markets in the City, said that the focus was firmly fixed on Geithner's proposals.

"The detail of the US plan will likely take some time to disseminate which could in turn help extend the rally," he said.

However, there are concerns that investors may not take part in the plan because Wall Street has been so heavily targeted by US lawmakers who want to claw back bonuses.

"Investors will be very wary of committing capital at the same time as Congress is vilifying Wall Street on bonuses," said Sean Callow of Westpac.

Others were more upbeat. "It's definitely our intention to get involved as one of the investment managers in this programme," said Curtis Arledge, managing director at asset manager BlackRock. …

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