Geithner's chart toward recovery
The key elements of the Treasury Secretary's plan.
First came the Bush bailouts. The Obama round is just beginning. Efforts to revive the economy stretch from the White House to a number of federal agencies, but no department is more central than the Treasury, where Secretary Timothy Geithner is point man for plans with these key elements:Skip to next paragraph
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1. Stimulate consumer and business activity. The White House and Congress in February approved a $787 billion spending package designed to fill part of the hole created as consumers and businesses retrench. It's a blend of tax cuts, assistance for the unemployed, aid to states, and federal investment in everything from clean energy to medical-information systems.
2. Prevent foreclosures amid a nationwide housing slump. The effort gives lenders incentives to modify loans of homeowners in default. It also aims to help borrowers who want to refinance their loans but can't because their home values have fallen. The goal is to keep the glut of for-sale homes from getting larger and to guide servicers on how to modify loans without being sued by the pools of investors who own the loans.
3. Remove bad assets from bank balance sheets, where they create doubts about solvency. In a "public-private investment partnership," the Treasury will put in money alongside private investors to bid for bank-held securities or loans. To stimulate the deals, the Treasury or the FDIC would loan money to the investors, and the Treasury would bear most of the risk if the assets underperform.
4. Replenish capital so that banks can resume normal lending. Bank regulators have been assessing the health of lenders – especially the 19 biggest ones. Those deemed to need more capital to survive a tough economy over the next few years either must raise it in the private sector (a tall order now) or get it from the government. Any Treasury infusions will come in the form of preferredstock that can be converted to common stock – the strongest form of capital. Why not common shares up front? The Treasury is trying to steer clear of "nationalization" of big banks, and national control rises with the US ownership share of common stock.
Will all of this work? Some economists say the plan is comprehensive enough to do the job. Others say the collective oomph won't be enough. Questions have arisen on every front:
Will the stimulus be large enough?
Can the housing plan work when it doesn't address loans that are a lot bigger than a home's value, doesn't help jobless people stay in their homes, and offers only modest incentives for home-buying activity?
Will banks cling to toxic assets, hoping they'll eventually be worth more than the public-private partners offer? Will the capital infusions restore banks to health or just keep them on life-support?
In short, Mr. Geithner and other officials have plenty to keep them busy. At some point, recovery depends on the private sector starting to lead the way again.