New Treasury Plan for Banks

Yesterday Treasury Secretary Geithner unveiled the Administration's plan to deal with all of the "toxic" or bad assets held by some banks.

The program intends to use $100 Billion of TARP funds, plus financial guarantees from the FDIC and Federal Reserve, to buy up bad loans and real estate related securities from troubled banks.

In order to succeed, the plan will need to attract private investors to buy the debt, and those private investors will have to accept the U.S. government as a 50-50 partner. Private investors may be leery of the participating, given recent Congressional moves to retroactively change the law and the current bashing of profits and capitalism in Congress and the Administration.

The way it's supposed to work is that the Federal Government and a private investor would jointly buy a "bad loan", thus allowing the bank to get that off of their books. Both the Government and the investor would be taking a risk - if the loan ends up getting paid off, they will profit, but if it does not, then both will lose the money. The hope is that this can help banks rebuild their balance sheets and maybe allow something to be salvaged from the bad loans.