U.S. Treasury Secretary Tim Geithner launched the Obama administration’s eagerly awaited plan to salvage the financial system today, but the plan was short on specifics.

Geithner stressed the need to get credit flowing once again, a task that the first US$350 billion spent under the Treasury’s plan has so far failed to do. Rebranding the Troubled Assets Relief Plan as the Financial Stability Plan, he said that the plan “will help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses.”

To do so, Geithner announced three new programs designed to “clean up and strengthen the nation’s banks, bring in private capital to restart lending, and to go around the banking system directly to the markets that consumers and businesses depend on”.

He said that the U.S. government will provide more capital to needy banks through “a new funding mechanism that uses funds from the Treasury as a bridge to private capital.” The Treasury’s investments in these institutions will be placed in a new Financial Stability Trust.

The administration also plans to establish a Public-Private Investment Fund along with the Fed, the FDIC, and the private sector, to buy legacy loans and assets that are now burdening many financial institutions. “By providing the financing the private markets cannot now provide, this will help start a market for the real estate related assets that are at the center of this crisis. Our objective is to use private capital and private asset managers to help provide a market mechanism for valuing the assets,” Geithner said.

However the plan’s design isn’t set, Geithner said it is “exploring a range of different structures for this program, and will seek input from market participants and the public as we design it”. He said the program should ultimately provide up to US$1 trillion in financing capacity, but it expects to start with US$500 billion.

Additionally, the Treasury is also working with the Fed on a Consumer and Business Lending Initiative that could provide another US$1 trillion to try and spur secondary lending markets, to bring down borrowing costs, and to help get credit flowing again.

Geithner added that the government will launch a program to prevent foreclosures, but the details of this plan won’t be available for a few weeks. “Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates,” he said.

Geithner added that “this strategy will cost money, involve risk, and take time. As costly as this effort may be, we know that the cost of a complete collapse of our financial system would be incalculable for families, for businesses and for our nation.”

“We will have to adapt our program as conditions change. We will have to try things we’ve never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted,” he allowed.

“This is a challenge more complex than any our financial system has ever faced, requiring new programs and persistent attention to solve. But the President, the Treasury and the entire Administration are committed to see it through because we know how directly the future of our economy depends on it,” he concluded.

IE