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Fallout: The Financial Crisis

Geithner’s plans for second half of TARP

John Dimsdale Feb 6, 2009
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Fallout: The Financial Crisis

Geithner’s plans for second half of TARP

John Dimsdale Feb 6, 2009
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TEXT OF STORY

Kai Ryssdal: We’re going to give you a glimpse at Mondays news today now. The Obama administration’s set to outline its plans for the second half of the $700 billion dollar bank bailout, that would be TARP in the vernacular. The first pass at handing out $350 billion to the nation’s banks was widely criticized for changing strategies and for a lack of accountability. So our Washington Bureau Chief John Dimsdale reports the TARP’s new overseers are going back to the original idea.


John Dimsdale: Under TARP one, the government poured money into troubled banks, figuring they would lend it out into the economy. But the banks still owned billions of dollars worth of shaky assets, so they hoarded the government’s money to cover their anticipated losses.

In TARP take two, Treasury will buy those troubled assets from the banks by expanding a Federal Reserve Bank lending program. Banks like that idea. Scott Talbott with the Financial Services Roundtable calls it an elegant solution.

Scott Talbott: The Federal Reserve can take the TARP money and combine it with its own lending power and you get a multiplier effect there that can’t be duplicated with other regulatory bodies.

As the leading financial industry regulator, the Fed already has experts at its regional banks who should know how to value the bad assets on the banks’ books. Treasury may also inject more capital into failing banks, like last time. But with more conditions, like limits on executive salaries and shareholder dividends. There may be other ideas, too. But James Barth, an historian of the S&L failures of the 1980s, says he’s looking mainly for consistency in the Treasury Secretary’s announcement.

James Barth: We’re hoping there’ll be a clear voice expressed on, Monday or sometime soon, exactly what’s going to be done and the administration won’t be flip-flopping. A big enemy of capital markets is obviously uncertainty. It’s hard to reassure people that things are being done the right way if every other day there’s a new game plan.

Barth says regulators in the past were shooting from the hip and their target was unclear.

In Washington I’m John Dimsdale for Marketplace.

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