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Obama 'Very Confident' Latest Bank Plan Will Work


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 credit.

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.

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