'Bad Bank' Plan Seen as Crucial to Recovery

As the Obama administration mulls the next phase of the bank bailout, Wall Street is increasingly calling for a return to its original intention: buying toxic securities that continue to riddle the sector's collective balance sheet.

Sen. Christopher Dodd (D., Conn.) on Tuesday said he was open to using funds from the Troubled Asset Relief Program (TARP) to establish a "bad bank" that would hold financial firms' debt securities, thereby boosting boost their capital levels and restoring confidence in the sector.

Treasury Secretary Timothy Geithner has said that the Obama administration was exploring the "bad bank" idea, but provided few details. A report by Bloomberg indicated Wednesday that the Federal Deposit Insurance Corp. may be lining up to manage the program.

Should the federal government allocate more money on top of the $700 billion it already has to solving the financial crisis?
	Yes No

The $700 billion TARP proposal, devised by former Treasury Secretary Henry Paulson and approved by Congress in October, initially intended to buy up bad assets. But before making a single purchase, Paulson changed course and instead chose to devote much of the first half of the fund to making preferred equity investments in the banks.

Estimates of the total value of troubled assets on banks' balance sheets range between $750 billion and $1.25 trillion, so any federally run bad bank would likely require more funding than the roughly $350 billion left from the original TARP. And funding for such a plan could make some lawmakers queasy, as they put the finishing touches on an economic stimulus plan that has moved north of $825 billion ahead of an expected vote on Capitol Hill.