Treasury Secretary Tim Geithner announced his plan for rescuing the American financial sector, even as the Senate passed its $838 billion stimulus package. Building on what former Secretary Paulson had set precedent for, Geithner plans to spend between $1.5 trillion and $2 trillion in an effort to stabilize banks and dethaw credit markets.
First, Geithner’s new plan calls for up to $1 trillion to be issued by the Federal Reserve through its Term Asset-Backed Loan Facility program that helps “market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration.”
Second, Geithner is creating the so-called “bad bank” to buy up toxic assets. In a sly move he is calling this a “public-private partnership” because the government will raise some of bad bank funds from private equity markets and encourage individuals and firms to buy up the assets in lieu of government purchases. Yet, the Treasury Secretary said his department is committing $500 billion in initial funds to the project, and is willing to provide another $500 billion if the “private” part doesn’t work out.
Third, Geithner is asking for the other $350 billion from Congress and will use it to inject more capital into the U.S. banks.
Fourth, the Geithner plan calls for $50 billion to be spent helping people avoid foreclosure.
Leaving aside the question of whether this is good use of money for a moment, the big issue is that the government can spend this much without going through Congress. The Bush Administration committed roughly $8.4 trillion tax dollars to “fighting” the recession, but only $868 billion was approved by representatives of the people (the $700 billion TARP and $168 billion January stimulus package). Now, while Congress passes a comparatively “small” amount, the Treasury department is spending more than doubt that voter approved number unchecked.