<font size="5"><center>
Obama Looks for Calm in a Firestorm</font size><font size="4">
President Must Balance Anger at Wall Street With
Need for Its Big Players to Help Revive the Economy</font size></center>
President Obama speaks to reporters about the AIG
bonus outrage. Flanking him are, from left, economic
adviser Christina Romer, Treasury Secretary Timothy
F. Geithner and economic adviser Lawrence H.
Summers. (By Bill O'leary -- The Washington Post)
By David Cho
Washington Post Staff Writer
Sunday, March 22, 2009; Page A01
The Treasury Department will unveil the next step in its financial rescue efforts tomorrow, announcing that it intends to create a government body, called the Public Investment Corp., to finance the purchase of as much as $1 trillion in soured loans and toxic assets from ailing banks, according to sources.
The plan calls for the new entity to combine its resources with the Federal Deposit Insurance Corp., the Federal Reserve and private investors to buy those loans and other assets. But the government will put far more money into the deals and take on more risk than the investors, which could include hedge funds, private-equity firms, pension funds and foreign investors with U.S. headquarters, the sources said. The corporation will be funded with $75 billion to $100 billion from the $700 billion financial rescue package.
Key details of the toxic asset purchasing program are not yet finalized, said officials in contact with the Treasury. Some expressed concern that the markets would expect too much out of Monday's announcement. When Treasury Secretary Timothy F. Geithner first sketched out the administration's rescue plan last month, he was criticized on Wall Street and on Capitol Hill for being too vague and creating uncertainty in the markets.
The Obama administration also risks a backlash from lawmakers and ordinary Americans who expressed outrage over $165 million in bonus payments by American International Group to employees of its most troubled unit -- despite the firm receiving more than $170 billion in federal aid.
White House officials said they are seeking a solution to the AIG bonus controversy in light of a bill that the House passed Thursday that would impose punitive taxes on bonus payments at all financial firms. Industry officials say the House measure would scare off many banks from taking government aid because the majority of their employees receive bonuses. The banks could still survive, but without federal assistance they would not have enough capital to restart lending, which is considered central to reviving the economy.
The administration's goal, one senior official said, is to pursue compensation reform that addresses public outrage while maintaining stability in the financial system.
The toxic asset initiative is only one piece of the administration's financial rescue package, which includes efforts to stabilize banks, aid the consumer credit markets and provide relief for struggling homeowners to head off foreclosures, a Treasury official said.
"Our singular focus is on increasing lending to support economic recovery. Everything we do to stabilize the financial system is done with that goal in mind," added Stephanie Cutter, a Treasury adviser to Geithner. She declined to discuss details of the plan. "Ridding bank balance sheets of problem assets is the next step in that process, but it alone won't solve the credit problem."
The government's effort to deal with toxic assets and loans harkens back to the original intent of the Troubled Assets Relief Program, or TARP, that Congress approved in October.
After the measure was signed into law, Bush administration officials moved away from directly purchasing the assets partly because they thought it would take too long to develop the right program and because they thought they needed to use the bulk of the rescue funds simply to keep banks alive. Those officials were widely criticized by lawmakers and investors for changing course so suddenly and creating uncertainty about the government's intentions.
Last fall, billionaire investor Warren E. Buffet, Goldman Sachs chief executive Lloyd Blankfein and William H. Gross, the managing director of PIMCO, the largest bond fund in the world, approached Treasury officials about an idea to create investment funds, using public and private money, to buy toxic assets from banks, according to former senior Treasury officials. Buffett is a director of The Washington Post Co.
The Obama administration further developed that proposal to address the two main problems banks are facing: troubled debt such as mortgages that institutions are holding until the loans are paid off, plus the complex securities and derivatives that were invented to finance those loans. Both types of assets -- the loans and the complex securities -- have fallen in value. Banks are stuck with them, hindering their ability to lend.
In his weekly radio and Internet address yesterday, Obama made no mention of the AIG bonus scandal, choosing instead to use the forum to urge lawmakers to pass his budget. He plans to do the same at his second prime-time news conference Tuesday night.
His call on Congress to take up "the important work of debating this budget" is unlikely to do much to shift the political conversation away from where it has been for seven days.
Even as the president left Washington mid-week for town hall meetings on the budget and an appearance on "The Tonight Show With Jay Leno," his Treasury secretary became the whipping boy for congressional anger as lawmakers proceeded to draft legislation aimed at punishing AIG executives for the bonuses.
"Quite simply, the Timothy Geithner experience has been a disaster," Rep. Connie Mack (R-Fla.) said Tuesday in calling for the secretary's resignation.
The AIG controversy has prompted Republicans to more directly attack Obama than at any time since he took office. At a Thursday session with reporters, Senate GOP leaders personally mocked him as a dilettante president, busy making lighthearted appearances on television, even talking about college basketball on ABC's "Good Morning America."
"He's even found time to fill out his NCAA bracket," Sen. Lamar Alexander (R-Tenn.) said.
The mounting anger last week on both sides of the issue served as a blunt reminder that Obama's efforts to fix the economy will require a delicate balance of several constituencies: the public, the Congress and the financial industry.
Press secretary Robert Gibbs admitted as much Friday, telling reporters that the president has "two objectives" as he confronts demands that he do something about the AIG bonuses.
"The first is understanding that taxpayer anger and frustration," Gibbs said. But also, he added, Obama must ensure "our ability to stabilize the financial system and ensure that credit flows from banks and lending institutions."
The political dangers inherent in navigating between those two objectives became clearer last week as Gibbs and other White House officials were peppered with questions about Geithner's knowledge of the bonuses given to executives at AIG.
Geithner's Treasury Department position was shaky even before it started. His confirmation was held up by revelations that he had failed to pay thousands of dollars in taxes. His early rollout of a bank bailout plan was savaged as flimsy by Wall Street, and the stock market plunged.
Now, as the president said last week, Geithner is "on the hot seat" once again, in part because of his role as head of the New York Federal Reserve at the time the AIG bailout was initiated.
In particular, Geithner and the White House have been under fire for conflicting answers about when the Treasury secretary found out that AIG executives would receive bonuses on March 15. A White House timeline initially said that he found out on March 10, but he later admitted that he had known a week earlier.
Obama has repeatedly defended Geithner, calling him indispensable to the task of reviving the economy. But the damage to his reputation, especially on Capitol Hill, was hard to miss. By Thursday, Geithner was on television, trying to repair his image.
"I completely share the basic frustration across America about what's gotten us to this place," he said on CNN Thursday evening.
Republicans have seized on the AIG issue in the belief that it has the potential to link Obama more closely to the widely unpopular $700 billion bailout legislation for the financial sector -- legislation that was crafted in the Bush administration.
"They're in charge," Sen. John Cornyn (Tex.), chairman of the National Republican Senatorial Committee, said of the Obama administration. "This could be a game changer in one sense. It's tapped into the populist outrage."
Rep. Charles B. Rangel (D-N.Y.), chairman of the tax-writing Ways and Means Committee, was initially reluctant to use the tax code in a punitive way, but he changed his mind as the political pressure mounted and as he drew up an even broader group of individuals dragged into the bonus tax than just AIG executives.
"They have caused irreparable harm," Rangel told reporters Wednesday, hours before releasing his plan.
Perhaps no reaction better summed up the attitude on Capitol Hill than that of Sen. Olympia J. Snowe (R-Maine), a co-sponsor of the Senate legislation.
Told by reporters that her plan could eliminate the entire salary-bonus structure of the financial sector, Snowe held her hand to her mouth and posed, making a mock gesture of shock at the suggestion.
"That's about the size of it," she said, declaring that her preference was to wipe out bonuses for every company receiving government rescue. "This isn't the time for the status quo mentality."
Despite the aggressive rhetoric on Capitol Hill, final resolution could be weeks away.
Senate leaders, who have several key GOP votes of endorsement, hope to pass their bill this week, but it would have to be reconciled with the House legislation to iron out their critical differences. The goal is to send final legislation to Obama by April 3, when Congress is slated to go on a two-week legislative break.
Senate Majority Whip Richard J. Durbin (D-Ill.), for one, predicted that the anger and outrage that fuel the bonus controversy will soon fade.
"We'll come back down to earth," he said. "And we'll realize there's a lot of other work to be done."
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/21/AR2009032102038.html
Obama Looks for Calm in a Firestorm</font size><font size="4">
President Must Balance Anger at Wall Street With
Need for Its Big Players to Help Revive the Economy</font size></center>
President Obama speaks to reporters about the AIG
bonus outrage. Flanking him are, from left, economic
adviser Christina Romer, Treasury Secretary Timothy
F. Geithner and economic adviser Lawrence H.
Summers. (By Bill O'leary -- The Washington Post)
By David Cho
Washington Post Staff Writer
Sunday, March 22, 2009; Page A01
The Treasury Department will unveil the next step in its financial rescue efforts tomorrow, announcing that it intends to create a government body, called the Public Investment Corp., to finance the purchase of as much as $1 trillion in soured loans and toxic assets from ailing banks, according to sources.
The plan calls for the new entity to combine its resources with the Federal Deposit Insurance Corp., the Federal Reserve and private investors to buy those loans and other assets. But the government will put far more money into the deals and take on more risk than the investors, which could include hedge funds, private-equity firms, pension funds and foreign investors with U.S. headquarters, the sources said. The corporation will be funded with $75 billion to $100 billion from the $700 billion financial rescue package.
Key details of the toxic asset purchasing program are not yet finalized, said officials in contact with the Treasury. Some expressed concern that the markets would expect too much out of Monday's announcement. When Treasury Secretary Timothy F. Geithner first sketched out the administration's rescue plan last month, he was criticized on Wall Street and on Capitol Hill for being too vague and creating uncertainty in the markets.
The Obama administration also risks a backlash from lawmakers and ordinary Americans who expressed outrage over $165 million in bonus payments by American International Group to employees of its most troubled unit -- despite the firm receiving more than $170 billion in federal aid.
White House officials said they are seeking a solution to the AIG bonus controversy in light of a bill that the House passed Thursday that would impose punitive taxes on bonus payments at all financial firms. Industry officials say the House measure would scare off many banks from taking government aid because the majority of their employees receive bonuses. The banks could still survive, but without federal assistance they would not have enough capital to restart lending, which is considered central to reviving the economy.
The administration's goal, one senior official said, is to pursue compensation reform that addresses public outrage while maintaining stability in the financial system.
The toxic asset initiative is only one piece of the administration's financial rescue package, which includes efforts to stabilize banks, aid the consumer credit markets and provide relief for struggling homeowners to head off foreclosures, a Treasury official said.
"Our singular focus is on increasing lending to support economic recovery. Everything we do to stabilize the financial system is done with that goal in mind," added Stephanie Cutter, a Treasury adviser to Geithner. She declined to discuss details of the plan. "Ridding bank balance sheets of problem assets is the next step in that process, but it alone won't solve the credit problem."
The government's effort to deal with toxic assets and loans harkens back to the original intent of the Troubled Assets Relief Program, or TARP, that Congress approved in October.
After the measure was signed into law, Bush administration officials moved away from directly purchasing the assets partly because they thought it would take too long to develop the right program and because they thought they needed to use the bulk of the rescue funds simply to keep banks alive. Those officials were widely criticized by lawmakers and investors for changing course so suddenly and creating uncertainty about the government's intentions.
Last fall, billionaire investor Warren E. Buffet, Goldman Sachs chief executive Lloyd Blankfein and William H. Gross, the managing director of PIMCO, the largest bond fund in the world, approached Treasury officials about an idea to create investment funds, using public and private money, to buy toxic assets from banks, according to former senior Treasury officials. Buffett is a director of The Washington Post Co.
The Obama administration further developed that proposal to address the two main problems banks are facing: troubled debt such as mortgages that institutions are holding until the loans are paid off, plus the complex securities and derivatives that were invented to finance those loans. Both types of assets -- the loans and the complex securities -- have fallen in value. Banks are stuck with them, hindering their ability to lend.
In his weekly radio and Internet address yesterday, Obama made no mention of the AIG bonus scandal, choosing instead to use the forum to urge lawmakers to pass his budget. He plans to do the same at his second prime-time news conference Tuesday night.
His call on Congress to take up "the important work of debating this budget" is unlikely to do much to shift the political conversation away from where it has been for seven days.
Even as the president left Washington mid-week for town hall meetings on the budget and an appearance on "The Tonight Show With Jay Leno," his Treasury secretary became the whipping boy for congressional anger as lawmakers proceeded to draft legislation aimed at punishing AIG executives for the bonuses.
"Quite simply, the Timothy Geithner experience has been a disaster," Rep. Connie Mack (R-Fla.) said Tuesday in calling for the secretary's resignation.
The AIG controversy has prompted Republicans to more directly attack Obama than at any time since he took office. At a Thursday session with reporters, Senate GOP leaders personally mocked him as a dilettante president, busy making lighthearted appearances on television, even talking about college basketball on ABC's "Good Morning America."
"He's even found time to fill out his NCAA bracket," Sen. Lamar Alexander (R-Tenn.) said.
The mounting anger last week on both sides of the issue served as a blunt reminder that Obama's efforts to fix the economy will require a delicate balance of several constituencies: the public, the Congress and the financial industry.
Press secretary Robert Gibbs admitted as much Friday, telling reporters that the president has "two objectives" as he confronts demands that he do something about the AIG bonuses.
"The first is understanding that taxpayer anger and frustration," Gibbs said. But also, he added, Obama must ensure "our ability to stabilize the financial system and ensure that credit flows from banks and lending institutions."
The political dangers inherent in navigating between those two objectives became clearer last week as Gibbs and other White House officials were peppered with questions about Geithner's knowledge of the bonuses given to executives at AIG.
Geithner's Treasury Department position was shaky even before it started. His confirmation was held up by revelations that he had failed to pay thousands of dollars in taxes. His early rollout of a bank bailout plan was savaged as flimsy by Wall Street, and the stock market plunged.
Now, as the president said last week, Geithner is "on the hot seat" once again, in part because of his role as head of the New York Federal Reserve at the time the AIG bailout was initiated.
In particular, Geithner and the White House have been under fire for conflicting answers about when the Treasury secretary found out that AIG executives would receive bonuses on March 15. A White House timeline initially said that he found out on March 10, but he later admitted that he had known a week earlier.
Obama has repeatedly defended Geithner, calling him indispensable to the task of reviving the economy. But the damage to his reputation, especially on Capitol Hill, was hard to miss. By Thursday, Geithner was on television, trying to repair his image.
"I completely share the basic frustration across America about what's gotten us to this place," he said on CNN Thursday evening.
Republicans have seized on the AIG issue in the belief that it has the potential to link Obama more closely to the widely unpopular $700 billion bailout legislation for the financial sector -- legislation that was crafted in the Bush administration.
"They're in charge," Sen. John Cornyn (Tex.), chairman of the National Republican Senatorial Committee, said of the Obama administration. "This could be a game changer in one sense. It's tapped into the populist outrage."
Rep. Charles B. Rangel (D-N.Y.), chairman of the tax-writing Ways and Means Committee, was initially reluctant to use the tax code in a punitive way, but he changed his mind as the political pressure mounted and as he drew up an even broader group of individuals dragged into the bonus tax than just AIG executives.
"They have caused irreparable harm," Rangel told reporters Wednesday, hours before releasing his plan.
Perhaps no reaction better summed up the attitude on Capitol Hill than that of Sen. Olympia J. Snowe (R-Maine), a co-sponsor of the Senate legislation.
Told by reporters that her plan could eliminate the entire salary-bonus structure of the financial sector, Snowe held her hand to her mouth and posed, making a mock gesture of shock at the suggestion.
"That's about the size of it," she said, declaring that her preference was to wipe out bonuses for every company receiving government rescue. "This isn't the time for the status quo mentality."
Despite the aggressive rhetoric on Capitol Hill, final resolution could be weeks away.
Senate leaders, who have several key GOP votes of endorsement, hope to pass their bill this week, but it would have to be reconciled with the House legislation to iron out their critical differences. The goal is to send final legislation to Obama by April 3, when Congress is slated to go on a two-week legislative break.
Senate Majority Whip Richard J. Durbin (D-Ill.), for one, predicted that the anger and outrage that fuel the bonus controversy will soon fade.
"We'll come back down to earth," he said. "And we'll realize there's a lot of other work to be done."
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/21/AR2009032102038.html
