TARP 3 unveiled by Geithner
More of the same, only a lot more of it might be the best way to summarise the revised plan produced by the new US Treasury secretary, Tim Geithner, to stabilise and revitalise the American banking system, and announced in a broad form this morning.Key elements of the plan include:* access by banks to a "capital buffer" provided by Treasury, and described in the outline as "contingent equity". Shares prices on Monday, February 9 will provide the basis of pricing Treasury purchase of bank shares, though at some additional discount. There's no budget for equity investments mentioned in the plan.* co-investment by Treasury alongside private investors in what the plan labels legacy assets and everyone else labels toxic assets. Though not mentioned in the plan, some reports over recent days suggested co-investors would enjoy some form of government guarantee over at least part of their investment.* doubling to US$100 billion from US$50 billion the US Treasury to leverage US$1 trillion in investment in new, securitised loans by the US Federal Reserve under the "term asset-backed securities loan facility", a facility previously announced but little used.The remainder of the US$350 billion appropriated by the US Congress in October 2008 will have to fund these initiatives, thus using the second half of the budget extracted by the former US administration.There is also talk of somehow making banks show they use financial assistance to undertake new lending, some aid to reduce the number of mortgage foreclosures and in theory some limits on executive pay at banks.So the measures are, as recent reports suggested, all about stimulating a market in both new conventional loans and also distressed loans, or in other words a policy of yet again seeking to revive liquidity, and counting on that aspect to moderate the current financial mess and establish a new basis for economic growth.