Sunday, January 25, 2009

Treasury Nominee Hints at Bailout Tweaks

Sources: Financial Times, Geithner Pledges ‘Dramatic’ Action; Washington Post, Geithner Says Financial Plan Due in Weeks

In a hearing last week before the Senate Finance Committee, President Obama’s nominee for the Security of the Treasury, Timothy Geithner, said that the Obama administration’s “dramatic” plan to respond to the economic crisis will be ready for public scrutiny in a few weeks.

Without offering any specific insight to the plan, Geithner said that the plan will do more to strengthen financial institutions and enable them to lend to small businesses, college students, car buyers, and real-estate buyers, providing more substantial support to the credit markets. The Obama team could be basing its credit-market-enhancing plan on the Federal Reserve’s Term Asset-backed Securities Lending Facility, a program that combines equity from the Treasury with loans from the Fed to provide investors with low-cost funding to purchase securities comprised of cash flow from consumer loans.

Obama’s plan is said to be a “re-tooling” of the original $700-billion bailout plan that Congress passed in October and will include provisions requiring institutions receiving government money to document increased lending. Geithner said the Obama team is considering a “broad range of proposals” to stimulate and reform the government’s approach to the banking industry.

Geithner also said that government experts are working to compile labor studies to help build a plan to strengthen the failing U.S. auto industry. He also mentioned that he will work China to ensure flexible currency regimes, something that will require “substantial[] engagement” on his behalf.

Questions for Discussion: Do you think Geithner’s preview of Obama’s economic plan is on the right track? Is there enough information to judge its potential for success? What changes would you suggest?

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