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WASHINGTON: The US Treasury on Saturday unveiled details of the
government’s unprecedented $700-billion bailout plan for the US
financial sector in the worst market crisis since the Great
Depression.
The Treasury wants authority from Congress “to
purchase troubled assets from financial institutions in order to
promote market stability and help protect American families and the
US economy,” the department said in a statement.
Revealing details of the plan that President
George W. Bush’s administration sent to Congressional leaders
on Friday, the Treasury said it was seeking the “authority to
issue up to $700 billion of Treasury securities to finance the
purchase of troubled assets.”
The Treasury said the plan calls for purchases
of residential and commercial mortgage-related assets, which may
include mortgage-backed securities and whole loans.
Under the plan “as of Saturday afternoon,”
the statement said—highlighting the fluidity of the crisis—
Treasury Secretary Henry Paulson would have the authority, in
consultation with Federal Reserve Chairman Ben Bernanke, “to
purchase other assets, as deemed necessary to effectively stabilize
financial markets.”
“Removing troubled assets will begin to
restore the strength of our financial system so it can again finance
economic growth,” the statement said.
The Treasury said the timing and scale of any
purchases would be at the discretion of Treasury and its agents,
subject to the $700-billion cap.
The pricing of the toxic mortgage-related
assets, whose value has plummeted in the worst US real-estate slump
in decades, will be done “through market mechanisms where
possible, such as reverse auctions,” the Treasury said.
The dollar cap will be measured by the purchase
price of the assets, it said, and the authority to purchase would
expire two years from the date the legislation is signed into law.
Private asset managers will manage the assets at
the direction of Treasury to meet program objectives.
“Treasury will have full discretion over the
management of the assets as well as the exercise of any rights
received in connection with the purchase of the assets. Treasury may
sell the assets at its discretion or may hold assets to maturity,”
the statement said.
“Cash received from liquidating the assets,
including any additional returns, will be returned to Treasury’s
general fund for the benefit of American taxpayers.”
Funding for the program would come
“directly” from Treasury’s general fund. Borrowing in support
of the program is subject to the statutory debt limit, which will be
increased by $700 billion, the statement said.
Under the program, assets must have been
originated or issued on or before September 17 to qualify.
The plan covers a broad range of qualifying
financial institutions, and opens the door to foreign firms.
“Participating financial institutions must
have significant operations in the US, unless the [Treasury]
secretary makes a determination, in consultation with the chairman
of the Federal Reserve, that broader eligibility is necessary to
effectively stabilize financial markets.”
If enacted into law, the Treasury will have to
report to the “appropriate” Congressional committees an update
within three months of the first asset purchases under the program.
Treasury subsequently would provide semi-annual
updates to the panels.
-- AFP
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