* Crossposted in CROSSFIRE

Hello, All.

And this is what happens when you put a person who can't even pay his own
taxes in charge of the piggy bank...

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U.S. offers $2 trillion bank plan but stocks slump
Tue Feb 10, 2009 6:42pm EST

By Glenn Somerville

WASHINGTON (Reuters) - U.S. Treasury chief Timothy Geithner on Tuesday
unveiled a new bank rescue plan that would put $2 trillion to work mopping
up bad assets and restoring credit, but stock markets plunged on fears it
would not work.

Global markets had intensely awaited Geithner's ideas for a plan mixing
private and public funding to stabilize a financial system tottering under
the weight of bad mortgages, but were disappointed over the scant details
provided.

The Dow Jones industrial average ended down 4.6 percent -- its biggest
one-day percentage drop since December 1 -- with bank stocks hit
particularly hard. U.S. government bonds rose as investors scrambled for
safe-haven debt.

In a speech on television and in Capitol Hill testimony, Geithner made his
case for how the Obama administration plans to handle the roughly $350
billion left in a $700 billion financial bailout fund approved by Congress
in October.

Geithner said the lack of public confidence in prior rescue efforts had
made it all the more difficult to stop "a dangerous dynamic" in
which a lack of credit undercuts the economy and leads to more weakness
among banks, worsening the recession.

"This is very complicated to get it right," he said in an
interview on Bloomberg Television. "We are going to try to get it
right before we give the details so that we don't add further to
uncertainty in these markets."

He steered clear of saying whether the administration might have to ask
Congress for more money to fix the banks, restore credit and counter
recession, but did not rule it out.

"We're going to consult with the Congress carefully to try to make
sure the world understands that the resources necessary to solve this will
be available over time," Geithner told CNBC, adding: "The
important thing is that ... we send a basic signal, working with the
Congress, that we will do what's necessary to fix this."

The lack of details frustrated many market participants.

"Investors want clarity, simplicity and resolution. This plan is seen
as convoluted, obfuscating and clouded," said James Ellman, president
of Seacliff Capital in San Francisco.

But Thomas Priore, president of ICP Capital in New York, gave Geithner
credit for candidly laying out the depth and difficulty presented by the
problem of how to restart credit flows when banks are burdened by
hard-to-value, weak assets.

"He told it like it is. That's a start," Priore said.

LEVERAGING PRIVATE MONEY

Geithner defended his decision to put forward what he called a framework
instead of waiting until a detailed proposal was ready.

"If we wait and we take the approach that we don't lay that out, ever,
until we've solved every problem and every detail, then I think that itself
will create greater uncertainty," he said, acknowledging he was
"very sensitive" to criticism about the approach.

A centerpiece of the renamed "Financial Stability Plan" is a
proposal to set up a public-private investment fund, in partnership with
the Federal Deposit Insurance Corp, a bank watchdog, and the Federal
Reserve.

Seeded with public money, it would leverage up to $500 billion -- and
possibly as much as $1 trillion -- so that toxic assets can be purged from
a weakened banking system.

Geithner told an invited audience at the U.S. Treasury that $50 billion in
federal rescue funds will be used to try to stem home foreclosures and
soften the crushing impact of the deep housing crisis now afflicting the
entire economy.

The plan would also expand a Fed program aimed at expanding credit card,
student, auto and small business lending.

The facility will grow from its current $200 billion limit to up to $1
trillion, thanks to a jump in Treasury funding to $100 billion from $20
billion.

The lending program would be extended to cover some mortgage-related assets.

The Treasury also said it would continue to pump capital into banks, as the
former Bush administration did, but Geithner said there will be conditions
attached to ensure the money is lent and that top executives heed
restraints on their pay.

In return for the capital, the government would receive preferred shares in
the banks that could convert to common stock.

BANK FIX PART OF LARGER PLAN

Geithner said it was critically important to restore credit flows in order
for a separate $800-billion-plus package of tax cuts and government
spending measures to lift the economy.

Shortly after Geithner announced the plan, the U.S. Senate cleared an $838
billion stimulus package, which needs to be reconciled with a separate bill
approved by the U.S. House of Representatives.

The Treasury is tussling with the worst financial crisis since the Great
Depression as careless lending fueled a housing boom gone bust, dragging
the U.S. economy -- and much of the rest of the world -- into a deep
recession.

President Barack Obama said on Monday that cleaning up banks' balance
sheets was a priority and did not rule out the possibility that it will
take more money than the $700 billion Congress already has approved to
complete the job.

"We don't know yet whether we're going to need additional money or how
much additional money we'll need until we see how successful we are at
restoring a level of confidence in the marketplace," Obama told a news
conference.
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Later,
Sean

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... Forgive and remember.
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