The Federal government is here to help:  New Plan to Help Banks Sell Bad Assets

WASHINGTON — After weeks of internal debate, the Obama administration has settled on a plan to inject billions of dollars in fresh capital into banks and entice investors to purchase their most troubled assets.

The new financial industry rescue plan, to be outlined in broad terms on Monday in a speech by the Treasury secretary, Timothy F. Geithner, will not require banks to increase their lending. That is despite criticism that institutions that already received money from the Troubled Asset Relief Program, or TARP, either hoarded it or used the funds to acquire other banks.

The incentives to investors could be in the form of commitments to absorb some of the losses from any assets they purchase, should their values continue to decline. The goal is to relieve the banks of their worst assets so that private investors might then provide more capital.

Officials hope that that part of the plan is not labeled a “bad bank” administered by the government, although they expect that some might call it that.

What isn’t going to happen, according to Obama:

Obama administration officials say they have rejected nationalizing institutions by taking large ownership stakes. They also will not immediately seek additional money from Congress beyond the $350 billion left in the TARP fund.

A big But:

With reports of lavish executive pay, extravagant corporate retreats and expensive office renovations at some of the institutions receiving assistance, political support for the program has sharply eroded in recent weeks. And as the White House has put forward a stimulus package of about $800 billion, there is recognition that Congress will very likely balk now at another request for bailout money.

But lawmakers said they expected the administration to seek more money for the rescue program later this year.

As surely as night follows day.

History will repeat itself:

Although critics have blamed the administration of George W. Bush for mismanaging the TARP fund by not pressing the banks receiving assistance to increase their lending, the new round of capital injections is not expected to come with government demands that the institutions provide more loans. But the new administration was expected to take other steps to encourage institutions to increase their lending, as well as to explain how much their lending had increased or decreased each quarter.


“The plan is very smart,” said Senator Charles E. Schumer, Democrat of New York, who declined to provide details of his discussions about the plan with senior administration officials. “It avoids one-size-fits-all. It will have an overarching effect on many institutions. But it doesn’t put all institutions in the same box.”

Well, that’s all right, then.  Senator Schumer knows all about the financial sector.

H/T Daily Beast