Geithner Weighs Enlisting Private Sector to Buy Toxic Assets: Report

The Treasury secretary is weighing setting up an 'aggregator bank' with the help of private companies, according to <I>The Wall Street Journal</I>.
Author:
Publish date:

Treasury Secretary Timothy Geithner is considering enlisting the private sector to help purge banks of the toxic assets that lie at the root of the financial crisis, according to a published media report.

The new Treasury secretary originally planned to make an announcement Monday, but now plans to unveil the details on Tuesday, according to an

Associated Press

report that cited a senior administration official.

Under the plan being considered, the government would use some of the money from the $700 billion Troubled Asset Relief Program to help start a so-called "aggregator bank" that would buy rotten assets, according to the report, published Sunday on

The Wall Street Journal's

Web site. Most of the bank's money, however, would come from private companies, the report said, citing anonymous people familiar with the matter.

Participating firms would profit if the assets they purchased rose in value over time, according to the report. The hope is that private-sector participation would help make for more accurate pricing of the assets, many of which are securities linked to toxic subprime mortgages.

Government officials for some time have considered creating a "bad bank" to rid the banking system of rotten assets. A significant problem, however, has been how to price them. If the government pays too much for them, it essentially wastes taxpayer money, but if it pays too little, the banks selling the assets will end up taking more write-downs related to the assets, the report noted.

Geithner is expected to announce details this week on how the Obama administration will use the remaining $350 billion of TARP funds. If selected, the "aggregator bank" would be one component of Treasury's program for using the funds, the report noted. The Treasury also plans new supplies of equity to troubled banks, help for homeowners and a method for sparking new consumer lending, the report added.

This article was written by a staff member of TheStreet.com.