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The focus in the financial markets this morning is on US Treasury Secretary Timothy Geithner. He is set to unveil the Obama Administration’s Financial Rescue Plan and the TARP portion of the plan is being rebranded as the Financial Stability Plan and the big question is “Will the rescue plan be enough to turn around the US economy or will the critics crush any optimism?”
Currencies are trading lower ahead of Geithner’s 11am ET speech because there is talk that a bad bank will not be apart of the plan. Excerpts from his upcoming speech have already been released and so far, there is nothing to get incredibly excited about. If Geithner is not completely confident about the Treasury’s plan, traders could plow right back into the US dollar on the fear that the US government is rolling the dice once again.
Expect a cocktail of initiatives that may include a bad bank that buys up the toxic debt or at least some sort of asset guarantee, more oversight, a plan on how to use the remainder of the TARP funds, expansion of the Term Asset Backed Securities Loan Facility to help private investors and direct assistance for homeowners facing foreclosure. One of the big questions will be how the toxic assets will be priced. If they are sold at market values, banks may have to report significant losses, which would erode their balance sheets even further.
Here is a reformatted version of excerpts from Geithner’s speech courtesy of Bloomberg News:
Wire: BLOOMBERG News (BN) Date: 2009-02-10 13:44:56
Geithner’s Feb. 10 Speech on Financial Recovery (Text Excerpts)
Feb. 10 (Bloomberg) — The following is a reformatted
version of excerpts of prepared remarks for Treasury Secretary
Timothy Geithner’s speech on the financial-recovery program
today. Geithner is scheduled to speak at 11 a.m. in Washington.
As President Obama said in his inaugural address, our
economic strength is derived from “the doers, the makers of
The innovators who create and expand enterprises.
The workers who provide life to companies and, with their
earnings, support families and invest in their future… This is
what drives economic growth.
The financial system is central to this process,
transforming the earnings and savings of American workers into
the loans that finance a first home, a new car or a college
education, the credit necessary to build a company around a new
Without credit, economies cannot grow, and right now,
critical parts of our financial system are damaged.
Instead of catalyzing recovery, the financial system is
working against recovery, and that’s the dangerous dynamic we
need to change.
It is essential for every American to understand that the
battle for economic recovery must be fought on two fronts. We
have to both jumpstart job creation and private investment, and
we must get credit flowing again to businesses and families.
Last fall, as the global crisis intensified, Congress acted
quickly and courageously to provide emergency authority to help
contain the damage. That vote gave the Administration the
authority to act to pull the financial system back from the edge
of catastrophic failure.
The actions we took were absolutely essential, but they were
The force of government support was not comprehensive or
quick enough to withstand the deepening pressure brought on by
the financial crisis.
The spectacle of huge amounts of taxpayer money being
provided to the same institutions that help caused the crisis,
with limited transparency and oversight added to public distrust.
Our challenge is much greater today because the American
people have lost faith in the leaders of our financial
institutions, and are skeptical that their government has – to
this point — used taxpayers’ money in ways that will benefit
Making Banks Strong and Healthy:
Second, we’re going to require banking institutions to go
through a carefully designed comprehensive stress test, to use
the medical term. We want their balance sheets cleaner, and
stronger. And we are going to help this process by providing a
new program of capital support for those institutions which need
The capital will come with conditions to help ensure that
every dollar of assistance preserves or generates lending capital
above the level that would have been possible in the absence of
Public-Private Investment Fund:
Third … together with the Fed, FDIC and private sector, we
will establish a Public Private Investment Fund. This program
will provide government capital and government financing to help
leverage private capital to help get private markets working
again for the legacy loans and assets that are now burdening the
entire financial system.
By providing the financing the private markets cannot now
provide, this will help start a process of providing a market for
the real estate related assets that are at the center of the this
crisis. Our objective is to use private capital and private
asset managers to help provide a market mechanism for valuing the
Opening up new lending:
In our financial system, 40 percent of consumer lending has
historically been available because people buy loans, put them
together and sell them. Because this vital source of lending has
frozen up, no plan will be successful unless it helps restart
securitization markets for sound loans made to consumers and
businesses – large and small.
I want to be candid: this comprehensive strategy will cost
money, involve risk, and take time.
We will have to adapt it as conditions change. We will have
to try things we’ve never tried before. We will make mistakes.
We will go through periods in which things get worse and progress
is uneven or interrupted.
But we will be guided by the principles of transparency and
accountability … dedicated to the goals of restoring credit to
families and businesses … and committed to moving our nation
towards an economic recovery that is as swift and widespread as
This is a challenge more complex than any our financial
system has ever faced, requiring new systems and persistent
attention to solve. But the President, the Treasury and the
entire Administration are committed to see it through because we
know how directly the future of our economy depends on it.
–Washington newsroom Editor: Chris Anstey