Treasury’s ‘toxic asset’ treatment plan

After an unsuccessful first attempt, the Treasury Department is poised to announce Monday details of its plan to help get so-called toxic assets off of the balance sheets of the nation’s largest and often most troubled financial institutions.

Treasury Secretary Timothy Geithner will meet with reporters shortly before the 9:30 a.m. opening bell for trading on the New York Stock Exchange. He’ll outline the public-private partnership he only discussed in broad strokes Feb. 10, sending financial markets into a dive across the globe because of a lack of long-awaited detail.

Geithner is expected to announce a plan in which Treasury will use $75-100 billion from last year’s $700 billion Wall Street bailout. This money, from the Troubled Asset Relief Program, commonly called TARP, will be used as seed money to partner with the private sector.

Together, the government and private sector players will team up to purchase the pools of mortgages, called mortgage-backed securities, which are the root of the nation’s deep economic problems. Banks have been forced to write down the value of these assets quarter after quarter, because there are no buyers for them.

Without buyers for securities, banks have been unwilling to lend, even though mortgage rates are at levels that are very low by historical standards.

“This is starting a market for these assets where there is none,” said an administration official, speaking on the condition of anonymity in order to speak freely.

Under the public-private partnership, an auction process will be established for the purchase of these assets, with the help of the Federal Reserve and the Federal Deposit Insurance Corp. The Fed will provide a facility for financing purchases of securities, while the FDIC will help finance the purchase of loans off of bank balance sheets.

To date, banks have been unwilling to sell these distressed assets at fire-sale prices and investors have been unwilling to purchase them unless they are at a discount much steeper than banks have been willing to accept.

Copyright 2009 McClatchy-Tribune Information Services