Updated from 4:28 p.m. EDT
Early signs indicated that the Obama administration's long-awaited plan to handle toxic assets weighing down the financial system may ultimately find success.
The Public-Private Investment Program, or PPIP, unveiled by Treasury Secretary Timothy Geithner on Monday will provide up to $1 trillion in financing and guarantees to private investors to kick-start the frozen credit markets. The Treasury will start the lending program with $75 billion to $100 billion in capital, working with the Federal Insurance Deposit Corp. to entice private investors to buy illiquid pools of loans by offering leverage and guarantees.
The FDIC will insure the majority of the purchase price of the deal, leveraging private funds at a six-to-one debt-to-equity ratio. The Treasury Department will then finance 50% of the remaining balance, leaving private investors responsible for coming up with about 7% of the capital required for the overall deal.
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