The effectiveness of the Treasury’s Public Private Investment Program hinges upon whether private investors will take the carrot that the Treasury is offering them. In order to buy into the program, not only do private investors need to be confident that the assets will appreciate in value, but also that the U.S. government will not rescind on their offer or create some surprising rule like the retroactive tax on bonuses. Also, banks have to be willing to part with the assets, which may not make sense if they have already written them off. How Currencies are Reacting to the Treasury’s Toxic Asset Plan
Nonetheless, it is clear that along with the Federal Reserve’s Quantitative Easing program, the U.S. government is throwing everything including the kitchen sink at the U.S. economy and it could finally work. The only catch is that the program will probably not begin until the end of the third quarter because applications are not due until May.
Remember the words of Jean-Baptiste Say (1803), one of the world’s greatest economist: “In times of political confusion, and under an arbitrary government, many will prefer to keep their capital inactive, concealed, and unproductive, either of profit or gratification, rather than run the risk of its display. This latter evil is never felt under a good government.”
Expect banks stocks to soar on this announcement. Geithner is slated to speak at 12:45pm to reiterate the details on the Treasury’s Public Private Partnership investment program to move toxic assets off bank balance sheets:
Public-Private Investment Program
The Financial Stability Plan – Progress So Far: Over the past six weeks, the Treasury Department has implemented a series of initiatives as part of its Financial Stability Plan that – alongside the Americ an Recovery and Reinvestment Act – lay the foundations for economic recovery:
* Efforts to Improve Affordability for Responsible Homeowners:
Treasury has implemented programs to allow families to save on their mortgage payments by refinancing, assist responsible homeowners in avoiding foreclosure through a loan modification plan, and, alongside the Federal Reserve, help bring mortgage interest rates down to near historic lows. This past month, the 30% increase in mortgage refinancing demonstrated that working families are benefiting from the savings due to these lower rates.
* Consumer and Business Lending Initiative to Unlock Frozen Credit
Markets: Treasury and the Federal Reserve are expanding the TALF in conjunction with the Federal Reserve to jumpstart the secondary markets that support consumer and business lending. Last week, Treasury announced its plans to purchase up to $15 billion in securities backed by Small Business Administration loans.
* Capital Assistance Program: Treasury has also launched a new
capital program, including a forward-looking capital assessment undertaken by bank supervisors to ensure that banks have the capital they need in the event of a worse-than-expected recession. If banks are confident that they will have sufficient capital to weather a Continue reading