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Bank CEOs defend their use of taxpayer money

They tried to reassure Congress and regain the trust of an angry public on Wednesday.

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This bank bailout represents a “collateral benefit,” in which the government showers help on managers and institutions who helped create the financial mess, Mr. Frank suggested.

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But even as the banks stand accused of running the nation’s vital credit industry economy nearly into the ground, government is also in the hot seat this week.

Geithner keeps pushing

Timothy Geithner, the Obama administration’s Treasury secretary, was back on Capitol Hill Wednesday to continue the difficult sales job for a redesigned bank-rescue plan.

Mr. Geithner’s plan met a cool reception by lawmakers and investors when it was unveiled Tuesday, largely because it lacked details on how it would work. (Click here for a look at what's behind the lack of clarity.)

Washington politicians have played their own role in the crisis; they created the regulatory environment in which risky mortgages and even riskier mortgage securities were made.

And politicians, from the White House to Congress, will have to work with industry to fix the problems.
Some in Congress are blunt about their own responsibility.

Arguing that politicians have helped to create problems in activities such as schools and healthcare, Alabama Rep. Spencer Bachus (R) told the bankers, “Now we’re turning our attention to you. May God help us … as we do that.”

But he also said that government actions so far may be helping.

Amid concerns about why banks aren’t lending more, Mr. Bachus took the opposite view. Credit availability might be worse, he suggested, but for the Treasury’s investment of new capital in the banks.
But, if the bailouts so far have arguably helped to offset a huge financial storm, they have not fully calmed it.

Four pillars in plan

The Geithner plan includes four key elements, intended to be a comprehensive fix and to maintain the economy’s flow of credit:

•A fund to buy bad loans, the source of uncertainty about banks’ health, using a mix of public and private funds. A key question is how to value those assets so that banks will sell them and investors will buy them.

•Closer scrutiny of the health of major banks, coupled with new capital infusions from the government and new strings attached.

•About $100 billion in funding for a Federal Reserve program, the Term Asset-Backed Securities Loan Facility, designed to stimulate $1 trillion in new consumer and business loans. This program could help to revive the now-stalled market for “securitization,” the bundling of loans into securities sold to investors.

•Some $50 billion or more to reduce foreclosures by modifying troubled home loans, which may help reverse declining home prices.

Geithner is battling both to win congressional support for this next phase of the bailout and to persuade worried investors and business leaders that the plan will be effective.

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