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Obama Administration Outlines Plan to Take on Toxic Assets

The Obama administration outlined a plan to take over up to $1 trillion in sour mortgage securities with the help of private investors, sending the stock market up nearly 500 points on March 23. The coordinated effort by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. relies on a mix of government and private money, mostly from institutional investors such as hedge funds, to help banks rid their balance sheets of toxic assets. The plan is designed to help determine a value on damaged mortgage loans and other toxic securities. If the value of the securities goes up, the private investors and taxpayers will share in the gains. If the values go down, the government and private investors would take on the losses. The plan will take $75 billion to $100 billion from the government's existing $700 billion Troubled Asset Relief Program. The government will pair this with private investments and loans from the FDIC and the Fed to generate $500 billion in purchasing power. The Treasury Department said purchases eventually could grow to $1 trillion, roughly half of the estimated $2 trillion of toxic assets on bank books now.

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Date Last Updated: 03/25/2009