U.S. President Barack Obama says his economic team is "very confident"
that the latest part of its bank rescue plan will work to free up
Mr. Obama made the comment Monday at the White House, after a meeting
with top economic officials, including Treasury Secretary Timothy
Geithner and Federal Reserve Chairman Ben Bernanke.
The U.S. Treasury Department earlier in the day published details of a
new plan setting up a public-private partnership to buy up
non-performing or bad loans.
Removing hundreds of billions of dollars of these so-called "toxic
assets" from banks' balance sheets is intended to restore confidence
and normal credit operations. If banks no longer need to keep large
cash balances on hand to cover losses from non-performing loans, they
would be able to resume normal lending operations.
The government would provide financial guarantees and low-interest
loans to encourage private investors to take part. If successful, the
plan could absorb at least $500 billion worth of bad loans.
The government intends to use $100 billion of previously allocated
funds from its bank-rescue plan to fund the loan-buying program.
Treasury Department officials say their strategy is based on an
assumption that excessive fear, rather than economic realities, has
driven down market prices for all assets.
The U.S. financial system fell into chaos last year, worsening a global
economic slowdown, after hundreds of thousands of Americans were unable
to meet payment schedules for their home loans. This put pressure on
banks' cash reserves, and made lenders reluctant to offer loans to
consumers. The credit freeze spread throughout the entire U.S. economy,
affecting businesses that need to borrow money, students who rely on
loans to finance university education and many others.
President Obama has consistently warned Americans that economic
problems could be long-lasting, but he now says there are signs that
the housing market is improving, and that could be an early signal of a
U.S. recovery from the recession.