Not even three months after the last administration left office, we have our first in-depth view inside the inter-workings of the former Treasury Department.

Phillip Swagel, assistant Treasury Secretary from December 2006 until January 2009, will present his 50-page essay tomorrow to the Brookings (Institution) Panel on Economic Activity entitled “The Financial Crisis: An Inside View.”

Swagel says that former Treasury Secretary Henry Paulson’s original intentions were to buy bank assets, not shares with the TARP money, and that he knew he would receive significant backlash for changing his course of action.

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As a component of Treasury Secretary Geithner’s Financial Stability Plan, the Federal Reserve and the Treasury Department launched the Term Asset-Backed Securities Loan Facility (TALF) today. Beginning on March 25, the program will create a new lending facility for up to $1 trillion in “auto loans, credit card loans, student loans, and SBA-guaranteed small business loans.”

“The TALF is designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities (ABS).  These markets have historically been a critical component of lending in our financial system, but they have been virtually shuttered since the worsening of the financial crisis in October.  By reopening these markets, the TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy,” said the Federal Reserve and the Treasury Department in a joint press release today.

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As of yesterday, there were no announcements of any planned action by the Treasury Department to provide financial aid to the Big Three despite the president’s ongoing assurance (hat tip: Calc Risk):

“An abrupt bankruptcy for autos could be devastating for the economy,” Mr. Bush told reporters aboard Air Force One during his trip to Iraq and Afghanistan. “We’re now in the process of working with the stakeholders on a way forward. We’re not quite ready to announce that yet.”

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Monday’s government investment into Citigroup was the latest display of federal aid that has many small bankers across the U.S. wondering, “where’s our money?” The recurring loans to prop up numerous large financial institutions have made it a lot harder for smaller-community banks to compete in the current marketplace:

“We haven’t committed these sins but yet, our reputation is tarnished and yet, we still aren’t too big to fail,” [Cindy Blankenship, chair of the Independent Community Bankers of America] said. “We’re the good guys and I’m furious about it. There is no equal treatment. I’m not too big to fail. If I had gone out and done what the big banks did, I would have been shut down.”

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The Treasury Department has announced their plans to shift the makeup of the $700 billion financial-rescue plan. At a press conference today, Treasury Secretary Henry Paulson explained that the Treasury will disband its efforts to buy up bad assets:

Mr. Paulson said the $700 billion would not be used to buy up troubled mortgage-related securities, as the rescue effort was originally conceived, but would instead be used in a broader campaign to bolster the financial markets and, in turn, make loans more accessible for creditworthy borrowers seeking car loans, student loans and other kinds of borrowing.

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A few sources have begun to leak information regarding the FDIC’s negotiations with the Treasury Department to rework as many as three million mortgages. The initiative comes as Congress has grown increasingly frustrated with the $700 billion allotted for a financial rescue being mostly dedicated to financial institutions rather than homeowners.

The program which is estimated to cost between $40-$50 billion, is designed to get lenders to agree to reduce a borrower’s monthly payments by either reducing their interest rate or the principal on the loan. The appeal for lenders resides in the governments guarantee to repay the lender a portion of their losses if the homeowner defaults on the newly restructured loan.

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The Group of Seven (G7), a gathering of the world’s wealthiest countries, began their meeting today in Washington, DC to discuss a global solution to the financial crisis that began in the US and has spread worldwide. G7 leaders, which include not only heads of state but financial ministers and central bankers, have agreed that a conglomerate decision is needed to re-establish a healthy financial operating system, after a global selloff of stocks have crippled the Asian, European, and American markets.

So far, all attempts from the US Treasury Department have not spurred inter-bank lending or extensions of credit. Following cues from Europe, the US is discussing two drastic measures to enact in order to unfreeze credit markets. The US is mulling are guaranteeing billions in bank debt, a move pitched to the G7 by the UK, as well as temporarily insuring all bank deposits, an action first taken by Ireland’s central bank last week: Read the rest of this entry »

In a vote that could be cast as early as Thursday, the most widespread financial rescue by a government could be passed into law. The Treasury Department sent the latest version of their proposal to Congress yesterday, where Democrats have already begun to critique and add provisions to the bailout that leaves taxpayers footing a $700 billion bill.

Congress would like to increase their oversight over the Treasury Department, add additional aid for homeowners, make changes to the bankruptcy laws, and most controversially, curb the large salaries of the top executives of the firms participating in the government’s rescue plan.

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From MarketWatch.com:

U.S. stock indexes rocketed higher Friday, with the major stock indexes wiping out a week of shattering losses, as Wall Street cheered the government’s effort to unfreeze credit markets as well as plans to move against short sellers.

The rally came after government officials sketched out plans to patch up the bleeding financial markets. The government has moved away from fixing case-by-case scenarios on Wall Street, and has moved to more broad, sweeping techniques that will be designed to turn markets around — hopefully for the long term: Read the rest of this entry »

On the heels of yesterday’s announcement by Treasury Secretary Henry Paulson that a government facility may be formed to buy off bad assets in order to clear company balance sheets, came a new sweeping sets of reforms announced this morning, that have some calling it the largest financial intervention since the Great Depression.

The newest reforms call for the development of a program that is intended to shore up money market mutual funds. President Bush has already approved the Treasury to tap up to $50 billion from a depression-era fund in order to insure the holdings of these “historically safe assets”: Read the rest of this entry »