A Plan To Purge Banks' Toxic Assets

From a banking system overhaul to a huge federal budget, the Obama administration is mobilizing for a busy economic policy week, reports CBS News correspondent Bianca Solorzano.

Treasury Secretary Timothy Geithner is scheduled to unveil the details of the banking plan on Monday, even as his boss was defending him against a barrage of criticism.

Geithner is expected to lift the veil on a new effort to rid U.S. banks of their so-called "toxic assets," by buying up tons of their soured loans, which, the administration says, are freezing the economy.

"It's generally complex securities that are simply so complicated that nobody really knows what they're worth," says Doug Rediker, of the New America Foundation.

The government is calling it the "public-private" investment program. The idea is to buy up to $1 trillion in troubled bank assets. The Treasury Department would invest $75 to $100 billion from the $700 billion in bailout money that Congress originally appropriated. The rest would come from the Federal Reserve and the Federal Deposit Insurance Corporation, and most importantly, private investors.

"One of the reasons you want to have the partnership is precisely so that, A, the government doesn't massively overpay for these troubled assets that are on the balance sheets; and, B, so that everybody has got skin in the game and you don't get into situations where you're paying guys for failure," said Austan Goolsbee, with the White House Council of Economic Advisers, on Face The Nation.

What's failing banks is now up for sale - such as mortgages now worth more than the homes themselves, and pools of mortgage-backed securities. The government wants investors to share the risks and rewards, Solorzano reports.

"The problems is, when you talk about toxic assets, you don't know what the price is, and you don't know what the risk is, so the general risk-reward profile that drives private investment if off the table," Rediker says.

But the administration believes - if it succeeds in attracting private investors - the market will begin to set realistic prices.

"This plan assumes private capital can be enticed in," Rediker says. "If it can't, they've got to go back to the drawing board and rethink the plan in its entirety."

Obama administration officials warn that this plan isn't a silver bullet, but an ice breaker to unfreeze credit markets so American families and businesses can borrow again - a key to economic recovery.
  • Bianca Solorzano

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