Treasury Announces Toxic-Asset Cleanup Plan
The Obama administration is rolling out its long-awaited plan Monday to cleanse the financial system of the toxic assets that produced the credit crisis and plunged much of the world into a deep recession.
The White House says it wants the government to work with private investors to buy up those bad mortgages and securities. But the effort, which will be presented by embattled Treasury Secretary Timothy Geithner, comes as Congress is moving to punish Wall Street executives at bailed-out companies who have been given hefty bonuses.
NPR's Tom Gjelten tells Renee Montagne that the administration's proposal essentially would create a market for those toxic assets, something that hasn't happened because no one knows what they're actually worth.
"There was no way to put a price on them," Gjelten says. "The market was just frozen because banks didn't want to give them away, but buyers, on the other hand, worried they would pay too much for them. That's been the key problem. So what the government here is trying to do is get a market started in these securities, with private investors bidding on the assets."
Investors haven't created this market on their own because it seemed too risky, so the three-part program is aimed at eliminating some of that risk, Gjelten says. The government will put up a lot of the money in partnership with these investors and will guarantee against a big portion of the potential losses for investors. The hope, he says, is that "some of these assets will be purchased and thereby get some prices attached to them so we'll have an idea of what they're actually worth."
Asked whether the private sector seemed to like the idea, Gjelten says it initially seemed receptive but the bonus-tax issue has thrown a wrench into the works, which worries the White House.
"We've already had some Wall Street folks saying they're not inclined to sign up as investment partners with the government if there's a possibility that Congress might decide down the road to change the rules and, let's say, tax any of the profits that come out of this venture," he says.
Gjelten notes that when President Obama was asked about the bonus-tax proposal Sunday night in an interview with 60 Minutes, he chose his words carefully.
"We can't govern out of anger. We've got to try to make good decisions based on the facts in order to put people back to work, to get credit flowing again," Obama said.
Gjelten says it's clear that Obama and other administration officials don't like the legislation. He also says the administration seems to be trying to "distinguish between 'good' executives and 'bad' executives."
"The bad guys are these executives who are a burden on the taxpayer because their companies are getting big bailouts," he says. "The good guys are the executives who are more responsible and willing to partner with the government to get the economy rolling again."
Gjelten says Christina Romer, head of the president's Council of Economic Advisers, also mentioned this distinction Sunday on Fox News.
"What we're talking about now are private firms that are kind of doing us a favor, right? Coming into this market to help us buy these toxic assets off banks' balance sheets," Romer said. "And I think they understand that the president realizes they're in a different category. They are firms that are being the good guys here to try to help us get these toxic assets off banks' balance sheets."
Gjelten says her message is: "You help us, and we'll protect you from Congress."
When asked whether Congress is in much of a mood to cooperate with Obama, Gjelten says that's still unclear.
"Among Republicans and Democrats alike, there's a lot of anger about these bailouts, and there still is this determination to punish somebody. Republicans, on the other hand, are also very angry about the big, $1.8 trillion deficit, so a lot of folks are very nervous," he says.
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