White House reveals plan to open up credit

WASHINGTON - The Obama administration aimed squarely at the crisis clogging the nation's credit system Monday with a plan to take over up to $1 trillion in sour mortgage securities with the help of private investors. For once, Wall Street cheered.

The announcement, closely stage-managed throughout the day, filled in crucial blanks in the administration's financial rescue package and formed what President Barack Obama called "one more critical element in our recovery."

The coordinated effort by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. relies on a mix of government and private money - mostly from institutional investors such as hedge funds - to help banks rid their balance sheets of real-estate related securities that are now extremely difficult to value.

The goal, said Obama, is to get banks lending again, so "families can get basic consumer loans, auto loans, student loans, (and so) that small businesses are able to finance themselves, and we can start getting this economy moving again."

The fleshed-out plan is designed to help fix a value on damaged mortgage loans and other toxic securities.

If the value of the securities goes up, the private investors and taxpayers would share in the gains. If the values go down, the government and private investors would incur losses.

"This will help banks clean up their balance sheets and make it easier for them to raise capital," Treasury Secretary Timothy Geithner said.

The plan will take $75 billion to $100 billion from the government's existing $700 billion Troubled Asset Relief Program. The government will pair this with private investments and loans from the FDIC and the Fed to generate $500 billion in purchasing power.

Geithner said purchases eventually could grow to $1 trillion - roughly half of the estimated $2 trillion of toxic assets on bank books now.

Under a typical transaction, for every $100 in soured mortgages being purchased from banks, the private sector would put up $7 and that would be matched by $7 from the government.

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