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February 10th, 2009

Update1:Geithner Vaguely Outlines Economic Plan



Treasury Secretary Timothy Geithner concluded his address on the government’s “Financial Stability Plan” late this morning with a candid and sincere statement: “…this strategy will cost money, involve risk, and take time.”

Yet, Geithner’s sincerity failed to make up for his vague overview. The Treasury Secretary outlined the Obama Administration’s plan of action with three main goals: “clean up and strengthen” banks, restore the natural flow of credit, and provide aid to homeowners and small businesses.

Here’s an overview:

Bank Assistance: “Those institutions that need additional capital will be able to access a new funding mechanism that uses funds from the Treasury as a bridge to private capital, said Geithner.” And this assistance will come with terms that should encourage the institutions to replace public assistance with private capital as soon as that is possible.”

“The Treasury’s investments in these institutions will be placed in a new Financial Stability Trust.”

Credit Markets: “Second, alongside this new Financial Stability Trust, together with the Fed, the FDIC, and the private sector, we will establish a Public-Private Investment Fund, said Geithner. “This program will provide government capital and government financing to help leverage private capital to help get private markets working again. This fund will be targeted to the legacy loans and assets that are now burdening many financial institutions.”

The Treasury’s goal to incorporate private interest back in the market involves jump-starting financing to the tune of $500 billion. The administration hopes to provide up to $1 trillion in financing when all is said and done.

Consumer and Business Lending: Utilizing the Federal Reserve’s Term Asset-Backed Securities Loan Facility announced last November, this initiative is dedicated to committing up to $1 trillion to re-establish consumer and business lending.

“We have agreed to expand this program to target the markets for small business lending, student loans, consumer and auto finance, and commercial mortgages,” said Geithner.

“And because small businesses are so important to our economy, we’re going to take additional steps to make it easier for them to get credit from community banks and large banks. By increasing the federally guaranteed portion of SBA [small business administration] loans, and giving more power to the SBA to expedite loan approvals, we believe we can turn around the dramatic decline in SBA lending we have seen in recent months.”

Housing: Geithner talked the least about the administration’s strategy to deal with housing, explaining that plans would not be unveiled for another couple of weeks.

Geithner made numerous references to the Treasury’s dedication to transparency and accountability — even announcing a new website where “The American people will be able to see where their tax dollars are going and the return on their government’s investment…”

We were really expecting more details from Geithner, but heard little more than a brief overview. The markets, anticipating the same, finished the day in the red.

What do you expect the outcome of the second-half of the TARP to be? Same inefficiency as the first, or will Americans actually see a return on “their” investment?

Click here to read the full text of Treasury Secretary Geithner’s speech.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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