In the midst of more glum economic news and as the $827 billion stimulus package makes its way through Congress, the Obama administration has unveiled another effort to stanch the recession: a new rescue package from the Treasury.
"Instead of catalyzing recovery, the financial system is working against recovery," Treasury Secretary Timothy Geithner said in his announcement this morning. "That's the dangerous dynamic we need to change."
The plan, which is a public-private partnership, has three different facets. First, it will finance buying up to $1 trillion in toxic bank assets. Second, it will expand, also by up to $1 trillion, a Federal Reserve program that makes more money available for consumer loans. Third, it will conduct a review, or a "comprehensive stress test," of each bank to determine how much federal aid it might need, using the remaining $350 billion in Troubled Asset Relief Program funds to funnel money to the banks.
To increase transparency, a government website, FinancialStability.gov, will track where federal funds are going, Geithner said.
Geithner had to do battle with some Obama administration officials to make the demands on banks less severe than what they had wanted. In particular, he did not want to dictate to banks how to spend their federal aid or limit executive pay more strictly, provisions that he was able to strike.
The announcement came as the government is throwing its energy behind trying to jump-start the economy. Most eyes have been on the stimulus bill, which will go to a vote in the Senate today. Legislators are hoping that a bill reflecting a compromise with the House version can be passed by the end of the week.
In the meantime, signs of a deepening recession continue to mount. General Motors—whose restructuring plan is due to the government next week to enable it to keep $13.4 billion in loans—announced today that it will lay off 10,000 workers, or 14 percent of its salaried workforce. It is also reducing pay for its workers by as much as 10 percent. And last week, the Labor Department announced that the country lost 3 million jobs in 2008.
That kind of news has made the administration escalate its rhetoric in an attempt to drum up support for its economic recovery plans. Inaction, President Obama said at last night's news conference, could "turn a crisis into a catastrophe."
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