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US unveils public-private plan for toxic assets

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Monday, March 23, 2009

The US Treasury on Monday unveiled a plan to buy up toxic assets clogging the financial system using government funds and Federal Reserve backing to attract private capital.

The cornerstone of the plan is a “Public-Private Investment Program for Legacy Assets” funded with 75 to 100 billion dollars from the government, which officials said would “generate 500 billion dollars in purchasing power” and could expand to one trillion dollars,

The plan, the outlines of which were unveiled last month, is a key to helping the ailing banking system recover from massive losses suffered in the US real estate meltdown.

The Treasury said the plan “ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.”

A Treasury statement said, “This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly.

“Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience,” it said.

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This article was posted: Monday, March 23, 2009 at 12:14 pm

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