An article today suggests that ‘unidentified sources’ have revealed that Treasury Secretary Geithner next week will unveil a ‘toxic asset plan’ comprised of three components that will use the Federal Reserve and Federal Deposit Insurance Corp (FDIC) to make the government’s $700 billion financial rescue fund go further by:

•    creating a public-private partnership to back purchases of bad assets by private investors;

•    expanding of a recently launched program being run by the Federal Reserve called the Term Asset-Backed Securities Loan Facility to include investors’ purchases of banks’ toxic assets.  This program provides loans for investors to buy assets backed by consumer debt, thereby theoretically making it easier for consumers to get auto, student and credit card loans; and,

•    utilizing FDIC resources (the guarantor of bank deposits) to purchase toxic assets.

The idea behind this apparently is to get the approximate U.S.$1 trillion in bad loans and ‘other troubled assets’ off the bank’s books.  In theory that will enable them to lend again on more conventional terms.  It is beyond me why the U.S. Administration thinks private investors are going to invest in such things without government guarantees of both their capital invested and a guaranteed return on that investment.  Perhaps Geithner’s plan will include such guarantees – stay tuned.

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