Toxic: Plan to buy troubled assets goes over well

Washington —- Treasury Secretary Timothy Geithner got a do-over, and this time Wall Street cheered.

On Feb. 10, Geithner bombed as he went before cameras to announce a plan to deal with the crisis clogging the nation’s credit system. The Dow plunged about 300 points amid investor confusion about details of the vaguely defined plan.

But on Monday, it soared as he filled in crucial blanks in the program for taking over up to $1 trillion in sour mortgage securities that are holding down lending. Together with a better-than-expected report on existing home sales, the announcement helped drive up the market almost 500 points.

The coordinated effort by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. relies on a mix of government and private money —- mostly from institutional investors such as hedge funds —- to help banks rid their balance sheets of real estate-related securities that are now extremely difficult to value.

The goal, said President Barack Obama, is to get banks lending again, so “families can get basic consumer loans, auto loans, student loans, [and so] that small businesses are able to finance themselves, and we can start getting this economy moving again.”

The introduction of the plan was closely choreographed so the president, rather than Geithner, would be the first administration official to appear on camera at midday to discuss it.

The fleshed-out plan is designed to help fix a value on damaged mortgage loans and other so-called toxic securities.

The plan will take $75 billion to $100 billion from the government’s existing $700 billion Troubled Asset Relief Program. The government will pair this with private investments and loans from the FDIC and the Fed to generate $500 billion in purchasing power.

Under a typical transaction, for every $100 in soured mortgages being purchased from banks, the private sector would put up $7 and that would be matched by $7 from the government. The remaining $86 would be covered by a government loan.

Geithner said purchases eventually could grow to $1 trillion —- roughly half of the estimated $2 trillion of toxic assets on bank books now.

If the value of the securities goes up, the private investors and taxpayers would share in the gains. If the values go down, the government and private investors would incur losses.

“This will help banks clean up their balance sheets and make it easier for them to raise capital,” Geithner said.

On the hot seat, Geithner has a lot personally tied to the success of the new program. His performance in the Cabinet, including his slowness in learning about multimillion-dollar executive bonuses paid by insurance giant AIG after taking bailout money, has been severely criticized by some in Congress.

Geithner testifies today before the House Financial Services Committee.

The plan was introduced ahead of a summit next week in London of 20 major and developing economies struggling with the global recession. Obama is trying to get other wealthy countries to do more to stimulate their economies with government spending, as the U.S. has done.

The administration is also expected to outline its plan for financial regulation overhaul later this week.

AP writers Martin Crutsinger, Anne Flaherty, Christopher S. Rugaber and Jeannine Aversa contributed to this article.

TUNE IN TONIGHT

> President Barack Obama will hold a televised news conference at 8. Live coverage on most cable news channels and broadcast networks.