Whitehouse Unveils Financial Rescue Plan.
POSTED: Monday, March 23, 2009 - 4:01pm
UPDATED: Wednesday, February 17, 2010 - 3:23pm
If you're trying to borrow money for your business, for college, or for a mortgage and been told no pay attention to President Obama's latest economic program...
The plan is to get private investors to buy so-called toxic assets that have frozen lending in many banks.
Of all the economic remedies being unleashed at the White House, administration officials say this might be the most important.
Buying bad bank debt.
It's another huge economic fix, floated Monday by President Obama and his Treasury Secretary Tim Geithner.
"We believe that this is one more element that is going to be absolutely critical in getting credit flowing again," said President Obama.
That's the point. College loans have dried up.
Car loans, too hard to get.
Home loans? Sorry.
Because banks hold a trillion dollars in shaky and defaulted mortgages
"When banks have these bad assets on their books they're hesitant to lend, private capital is hesitant to come in," said Christina Romer, Chair of the Council of Economic Advisers.
The Obama-Geithner plan is for banks to dump their toxic loans at a deep discount.
Investors would pay 7%, the government 7%, government insurance 83% to buy the loans.
"The alternative of letting it just sit there, let these assets just sit in the balance sheets of banks would risk creating a much longer and deeper recession," said Treasury Secretary Geithner.
But republicans are wary.
"To me, the whole process has been so mishandled and bungled," said republican Senator Jeff Sessions of Alabama.
And the AIG scandal could ruin the plan.
Fat cat investors might shy away buying toxic bank loans with government backing, fearing criticism and super taxes if they turn a big profit and get paid big bonuses.
"The more populist, the more angry the American public becomes about all this, Wall Street says 'well, we're not sure we're going to play the game'" said former Labor Secretary Robert Reich.
But President Obama says his toxic assets plan is a critical element in the recovery.
Phase one will cost up to 100 billion new dollars, maybe more down the road if investors buy in to buy up these toxic bank loans.