US defends big-spending new plan for toxic assets
The White House Sunday defended plans by beleaguered Treasury Secretary Timothy Geithner to use a huge new infusion of taxpayer cash to clear toxic assets off US banks' books.
Christina Romer, who chairs President Barack Obama's Council of Economic Advisers, said the administration would sink "in the order of 100 billion dollars" into its latest initiative to kick-start lending by shaky banks.
Austan Goolsbee, a member of Romer's advisory council, said Geithner will unveil the plan on Monday.
The Treasury chief will also reportedly unveil this week measures to increase oversight of executive pay as a furor simmers over lavish bonuses given by bailed-out insurer AIG.
Romer, who said she was "incredibly confident" that economic revival would be in place in a year's time, said calls for Geithner to resign were "silly" as he takes flak over the row at American International Group.
In an interview airing Sunday with CBS program "60 Minutes," Obama also backed Geithner. Should the secretary offer his resignation, Obama said he would reject the offer and respond: "Sorry buddy, you've still got the job."
But Richard Shelby, the top Republican on the Senate's banking committee, said his confidence in Geithner was "waning every day."
"If he keeps going down this road, I think that he won't last long. I think he's probably on shaky grounds now, at least with the Congress and a lot of the American people," he told "Fox News Sunday."
Geithner came under attack last month for giving only the broadest outlines of a banking rescue plan. Wall Street tanked on that announcement.
Now, the Washington Post and Wall Street Journal said, Treasury will give concrete details with the goal of taking up to 750 billion dollars in bad loans off banks' balance sheets and enable them to resume lending.
Romer confirmed that under the plan, the government will shoulder the lion's share of risk as it invites hedge funds and other financial institutions to invest in new funds to take over the bad assets linked to the mortgage market.
Initial government funding of roughly 100 billion dollars would come from an existing bailout program for Wall Street and tie up with programs in place by the Federal Reserve and the Federal Deposit Insurance Corp., she said.
"The crucial thing is it's being designed precisely so that it is going to be safe. We very much have the taxpayers' interest in mind, but we also have the interest of the whole economy on the mind," she told CNN.
"The crucial thing is getting lending going again. I can't say that enough, and that is why we're doing this."
But the government is already battling public outrage over the AIG bonuses, which reports said may have gone as high as 218 million dollars, as it readies the new scheme to shore up Wall Street.
Romer denied that private investors would refuse to partner with the US government because of the AIG controversy, after top bankers said the House surtax would set back economic recovery.
"What we're talking about now are private firms that are doing us a favor, right, coming into this market to help us buy these toxic assets off banks' balance sheets," she said on "Fox News Sunday."
"I think they understand that the president realizes they're in a different category (to bailed-out firms) and I think they are going to have confidence that they're going to be able to come into this program."
But the Obama administration's big spending came under renewed Republican fire, after the non-partisan Congressional Budget Office forecast the US deficit could hit 1.845 trillion dollars this year, four times the 2008 record.
Shelby said Obama would "absolutely" have to dial back his 3.55-trillion-dollar budget proposal, arguing: "We're on the fast road to financial destruction."
The president pleaded for more time.
"What's taken so long? You've been in office a whole 40 days and you haven't solved the greatest financial crisis since the Great Depression," he quipped in the "60 Minutes" interview.