New Bailout Plan Hinges on Private Investors

Treasury will set 'floor price' on distressed assets to lure buyers
By Kevin Spak,  Newser Staff
Posted Feb 9, 2009 8:37 AM CST
Treasury Secretary Timothy Geithner, right, convenes his first meeting as chairman of the President's Working Group on Financial Markets, Feb. 5, 2009, at the Treasury Department.   (AP Photo/Gerald Herbert)
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(Newser) – The Treasury's latest plan to rescue the banking industry relies heavily on private-sector investors, the New York Times reports. The government will guarantee a floor price on the toxic assets weighing down banks’ balance sheets, encouraging hedge funds, private equity groups, and even insurers to buy them. The plan should reduce the need for federal fundraising and mitigate the risk to taxpayers.

The process will probably need to be highly transparent, said one economist, because “Congress is really hypersensitive to this issue. Believing you can get away with the opaque deals we saw in Citigroup or Bank of America would be a misconception.” Treasury Secretary Timothy Geithner will likely request the remainder of the TARP funds for his plan, which would also inject more capital into banks and attempt to slow foreclosures.