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Rescue's 1st steps
Treasury official Kashkari outlines plans - including equity stakes and buying assets.
By Tami Luhby, CNNMoney.com senior writer
October 13, 2008: 8:17 AM ETNEW YORK (CNNMoney.com) -- A top Treasury official on Monday outlined the government's multi-prong effort to bail out the United States financial system and resuscitate the economy, though he offered few details on how the plan will be carried out.
Using authority granted in the $700 billion rescue plan passed by Congress 10 days ago, the Treasury Department is moving on five fronts. They are:
Purchasing troubled mortgage-backed securities
Buying mortgages, particularly from regional banks
Insuring mortgage-backed securities and mortgages
Purchasing equity in a broad array of financial institutions
Help delinquent borrowers stay in their homes
"Treasury is implementing its new authorities with one simple goal - to restore capital flows to the consumers and businesses that form the core of our economy," said Neel Kashkari, interim assistant secretary for financial stability, speaking in Washington, D.C., before the Institute of International Bankers.
Kashkari largely reiterated the administration's stance on propping up the nation's financial institutions, brought to their knees first by the mortgage meltdown and then the worldwide credit crunch. The tools will be deployed "as soon as they are ready," he said.
Meanwhile, Treasury is hiring executives and staff to lead the effort, he said.
Markets around the world are nervously awaiting details on how the United States will implement the rescue plan.
More government intervention
As the credit crisis deepens, administration officials find they have to take an ever greater role in righting the nation's financial system.
Last week, they revealed that they plan to not only buy troubled assets but take equity stakes in banks. By buying shares, the government would give financial institutions much-needed capital to shore up their balance sheets. This, in turn, could prompt private investors to inject capital into the banks and to spur institutions to start lending again.
The Bush administration was initially reluctant to take such a step, preferring instead to help stabilize the financial system by buying troubled mortgage assets. But the rescue plan's passage failed to ease the credit crisis, officials realized more needed to be done.
World leaders working together
With the crisis engulfing nations around the globe, European governments are also planning to buy stakes in their banks and take other steps in a desperate measure to get financial institutions lending to one another.
The British Treasury announced early Monday it will invest $63 billion in the Royal Bank of Scotland, HBOS and Lloyds.
The leaders of 15 European nations agreed Sunday to a wide-ranging plan to invest in their financial institutions and to guarantee inter-bank lending, said French President Nicolas Sarkozy.
"We want to give ... banks the means to lend, to support the economy to enable households to borrow for mortgages or consumption and give companies the means necessary to invest for growth," said Sarkozy, who also holds the rotating European Union presidency.
The 15 nations also said they would protect individual depositors' accounts and move to ease accounting regulations that determine how assets are valued, removing a requirement that they be based on market prices - so-called "mark-to-market" accounting.
Other countries, including Australia and United Arab Emirates, also took steps to restore confidence in their institutions.
The announcements come after weekend meetings of finance officials from the Group of Seven, Group of 20 and the International Monetary Fund. Leaders vowed to help stabilize economies around the world.
<link>
http://money.cnn.com/2008/10/13/news/economy/kashkari/index.htm?postversion=2008101308
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