Geithner: New Plan Will Help Get Credit Flowing

Treasury Secretary Timothy Geithner told CNBC that the government's highly-anticipated plan to deal with troubled mortgage loans and assets is just the latest effort to stem the financial crisis.

Treasury Secretary Timothy Geithner
Treasury Secretary Timothy Geithner

"It's the next step in the series of efforts we're taking to make sure that the banking system is doing what it should do, which is to provide credit for the economy," Geithner said in a taped interview to be aired on CNBC at 2 pm ET.

The plan announced Monday calls for both private and federal funds to purchase toxic assets, using low-cost government financing, government guarantees and government equity as incentives.

Under a typical transaction, for every $100 in soured mortgages being purchased from banks, the private sector would put up $7 and that would be matched by $7 from the government. The remaining $86 would be covered by a government loan provided in many cases by the Federal Deposit Insurance Corp.

"Right now, you have a bunch of loans people made over the last four years before the recession," Geithner said. "They're still sitting on the system, and they're making it harder for people to lend, have confidence. And we're trying to provide a mechanism to help the market take those assets off the balance sheets of banks. That'll free up capacity for lending."

Geithner declined to provide a timetable on how quickly the new program would be up and running.

"We're moving as quickly as we can," he said. "And as soon as we have the terms designed in a way we think it'll work for the taxpayer, and soon as we get the operational infrastructure in place, we're moving."

The Treasury Secretary said the government has already taken several steps to get credit flowing again.

"We've already taken a bunch of actions to help get mortgage interest rates down, to help millions of Americans refinance their homes, to take advantage of lower interest rates," he said. "We launched a very powerful small business lending program, for obvious reasons. Last week we launched this new program to get securities markets going again."

Geithner said the $9 billion in new issuance was more than has been seen in the last four months together, which he says will help bring interest rates down.

"So all these things are designed to help get credit flowing again at lower cost to businesses and families across the country," he said.

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Geithner said banks will be able to begin raising equity in larger volume again because of some of Treasury's efforts to bolster the securities and real estate loan markets.
"I think you're going to see people start to raise equity again," Geithner said. "If you're helping provide financing to get the securities markets going again, you're going to make it more likely
that these [banks] are able to clean up their balance sheets and raise private equity again."

Regarding last week's move by Congress to tax executive bonuses at a rate of 90 percent, Geithner said it was a reflection of the public outrage felt all over the country.

"I share that frustration and outrage. People have watched—people who were careful and responsible in their personal decisions are being terribly damaged by the actions who—of people who were terribly irresponsible," Geithner said. "And they are frustrated and angry. And we have a deep obligation to make sure that everything we're doing is designed to get, again, get recovery back on track, end this recession as quickly as we can, and get the financial system back to doing what it needs to do. And that's going to require we put strong conditions on taxpayers' money to make sure we're not rewarding failure, and that our assistance's going to help generate more lending, not reward executives got in this mess. But we also need to make sure again that we get credit flowing again. That's our core obligation. But the American people are right to be frustrated and angry.

"Our obligation is to make the American people confident that we're going to use taxpayer resources in ways that, again, are going to get credit flowing again, get recovery back on track, and are not going to be abused to reward failure. That's a difficult balance to strike, but we're going to work through this and, working with the Congress, we're going to find the right balance."