[marked changes to this document intended to convert from TOEFL English

into Native English]

Comment [Lookout1]: Oops! Freudian Slip

My Our Plan for Bad Bank Assets or Plausible Deniability??

The private sector will set asset prices. Taxpayers will share in any
upside.
By TIMOTHY GEITHNER

The American economy and manymuch of the world economies now face extraordinary
challenges, and confronting and resolving these challenges will continue to require a
continuation of the extraordinary actions taken by the Federal Reserve, the Treasury and the
agencies regulating the banking, financial and securities industries. Comment [Lookout2]: Why hasn’t the White
House sent an English major over to Treasury to help
out?
No financial crisis like this has a simple or single cause, but as a general principal, the root cause
of our current is that as a nation we borrowed too much and let our financial system take on
irresponsible levels of risk.[ Those actionsdecisions have caused enormous suffering, and much Comment [Lookout3]: So now, your
government will borrow too much and take on
of the damage has fallen on ordinary Americans and small-business owners who were careful irresponsible levels of risk, hoping to pay back our
and responsible. This is fundamentally unfair, and Americans are justifiably angry and creditors outside the US with deflated dollars.
frustrated. Comment [Lookout4]: Hello, where do you
think most of the lost jobs were, Iowa?

The depth of public anger and the gravity of this crisis require that every policy we take must be
held to the most stringent standardsserious test: whether it returnsgets our financial system back
to the business of providing credit to working families and viable businesses, and whether it
helps to prevent future financial crises. Comment [Lookout5]: Like perhaps inflation
spurred by $3 Trillion of government spending?

Over the past six weeks the President’s economic team haswe have put in place a series of
financial initiatives, alongside Congress’s the Recovery and Reinvestment Program, to help lay Comment [Lookout6]: Well, really one: you
name an asset class, and we will come up with an
the financial foundation for economic recovery. We launched a broad program to stabilize the acronym for a government lending program
housing market by providing government loans to financing Asset-Back Securities (TALF),
which will encourageing lower mortgage rates and makeing it easier for millions of American
homeowners to refinance and we have instituted a program to help homeowners avoid
foreclosure (HAMP). We have established a new capital program (TARP and CAP) to provide
banks with access to additional Tier I capital as a safeguard against additional bank failures
which could run the risk of causing a deeper recession. By having the government
ensureproviding confidence that banks will have a sufficient level of capital to weather the
recession and uncertain asset priceseven if the outlook is worse than expected, this will enable Comment [Lookout7]: OMG! Didn’t we learn
to vet what this guy says on an open mike?
the banks - today - to make more credit will be available to working families and viable
businesses the economy at lower interest rates today -- , which in turn will reduce the length and
severity of the recessionmaking it less likely that the more negative economy they fear will take Comment [Lookout8]: Good thought, “Our
place. only Fear is Fear itself”, but a very unfortunate way
of expressing it, unless you really believe that the
assets are worse than their marks.
We have started a major new lending program within the Federal Reserve targeted at the
securitization markets critical for affordable consumer and small business lending (CBLI portion
of TALF). Last week, we have announced additional programsactions to support lending to small
businesses by directly purchasing securities backed by Small Business Administration loans
(SBA portion of CBLI).

Together, actions over the last several months by the Federal Reserve and these initiatives by this
administration are already starting to make a tangible difference:. They have helped to bring
mortgage interest rates are near historic lows. Just this month, we saw and in March there was a
30% increase in refinancing of mortgages, which means millions of Americans are taking
advantage of the lower rates. This is good for homeowners, and it's good for the economy. The Comment [Lookout9]: unless, of course, we
thought that borrowing too much, or not charging
new joint lending program with the Federal Reserve led to almost $9 billion of new appropriately for the risk, were the original problems
securitizations last week, more than in the last four months combined, which will lead to further
improvement in credit markets.

However, the financial system as a whole is still presents many obstacles to a full working
against recovery. Many banks, still burdened by assets resulting from bad lending decisions, are Comment [Lookout10]: Jeez, this guy can
really turn an unfortunate phrase! Who exactly are
continuing to preserve capital rather thanholding back on provideing credit to businesses. Market the bad guys working against us, everyone on Wall
prices for many assets held by financial institutions -- so-called legacy assets -- are either Street?
uncertain or depressed or continuing to deteriorate. With these pressures at work on bank balance Comment [Lookout11]: which were mandated
sheets, business credit remains a scarce commodity, and credit that is available carries a high by Congressional and regulatory requirements to
lend to sub-prime borrowers
cost for businesses, which impacts their ability to create jobs for economic growthborrowers.
Comment [Lookout12]: because they don’t
want to be the next Main Street poster-boy for Wall
Today, we are announcing another critical piece of our plan to increase the flow of credit and Street evil – like Dick Fuld

expand liquidity. Our new Public-Private Investment Program will set up investment funds to
provide a market for the legacy loans and securities that currently burden the financial system.

The investment funds established under the Public-Private Investment Program will purchase
real-estate related loans from banks and securities from the broader markets. Banks will have the Comment [Lookout13]: OK, so when it turns
out that there are also toxic credit card and auto loan
ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to securities, we get two new programs?
participate in the equity capital of those funds and thereby take advantage of the debt financing
to those funds provided by the government. Comment [Lookout14]: I am sorry, why isn’t it
OK to say that this system won’t work unless
investors get the chance to make a profit?
The funds established under this program will have three essential design features. First, they
will use government resources in the form of equity capital from the Treasury, and debt
financing from the FDIC and Federal Reserve, in order to attractmobilize equity capital from
private investors. Second, the Public-Private Investment Program will ensure that private-sector
participants share in both the potential equity gains and the risk of equity lossess alongside the
taxpayer, and that the taxpayer shares in the debt financing profits from these investments. These
funds will be open to investors of all types, such as pension funds, so that a broad range of
Comment [Lookout15]: Does the asymmetric
Americans can participate. risk-reward sound like the CDS market?
Comment [Lookout16]: Interesting that Point
Third, private-sector purchasers will establish the value of the loans and securities purchased Three got its own paragraph. Why not also mention
that any program with low-cost non-recourse
under the program, which will protect the government from overpaying for these assets. government debt is unlikely to actually transact at
FMV? FMV would wipe out bank equity and force
a new round of TARP and CAP. So Baby Bear
needs a price that is Just Right, not too hot or cold
for the banks.
The new Public-Private Investment Program will initially provide debt financing for $500 billion
with the potential to expand up to $1 trillion over time, which represents is a substantial share of
estimated market value of the real-estate related assets originated before the recession that are
now clogging our financial system. Over time, by providing a new market for these assets that
does not now exist, this program will help improve asset values, increase lending capacity by
banks, and reduce uncertainty about the scale of losses on bank balance sheets. The ability to sell Comment [Lookout17]: WAIT! Are you saying
that WE CANNOT TRUST THE BANK SEC
assets to this fund will make it easier for banks to raise private capital, which will accelerate their FILINGS?????
ability to replace the capital investments provided by the Treasury.

This program to address legacy loans and securities is part of an overall strategy to resolve the
crisis as quickly and effectively as possible at the least cost to the taxpayer. We believe that Tthe
Public-Private Investment Program is better for the taxpayer than having the government alone
directly purchase the assets from banks that are still operating and assume a larger share of the
potential losses. Our approach shares risk and reward with the private sector, efficiently Comment [Lookout18]: Yeah, like they would
put money up just to share risk!
leverages taxpayer dollars, and deploys private-sector competition to determine market prices for
currently illiquid assets. Simply hoping for banks to sellwork these assets off over time risks
prolonging the crisis in a repeat of the Japanese experience.

Moving forward, we as a nation must work together to strike the right balance between our need
to promote the public trust in our continued fiscal strength and using taxpayer money prudently
to restore strengthen to the financial system, while also ensuring the trust and active engagement
of those financial market participants who are criticalwe need to do their part to get credit
flowing to working families and businesses -- large and small -- across this nation. Comment [Lookout19]: Yup, and $3+ Trillion
is just about the right balance!

Striking Tthis balance requires that those in the private sector to remember that government
assistance is a privilege, not a right. When financial institutions come to us for direct financial
assistance, our government has a responsibility to ensure these funds are deployed to expand the
flow of credit to the economy, not to enrich executives or shareholders. These provisions also
need to be designed and applied in a way that does not deter the participation by the private
sector in generally available programs to stabilize the housing markets, jump-start the credit
markets, and rid banks of legacy assets. Comment [Lookout20]: Tim, you are
confusing me, do you mean, Don’t punish employees
of PPIP participants like we are punishing AIG and
We cannot solve this crisis without making it possible for investors to take risks and reap Merrill or we won’t get PPIP off the ground, or do
you mean, Don’t punish all employees of all
commensurate rewards. While this crisis was caused by banks taking too much risk, the danger financial institutions or we will not have financial
now is that they will take too little. In working with Congress to put in place strong institutions?
protectionsconditions to prevent misuse of taxpayer assistance, we need to be very careful not to Comment [Lookout21]: Are Americans really
so stupid or socialist that they are not aware that all
discourage those investments which the economy needs in order to recover from recession. The private sector jobs are at least founded on the
consistent rule of law gives responsible entrepreneurs and investors the confidence to invest and principal of making a fair risk-adjusted return for
capital employed?
create jobs in our nation [as compared to the haphazard regulatory bailout patchwork that has our
heads spinning]. Our nation's commitment to pursue economic policies that promote confidence Comment [Lookout22]: Congress and misuse
in the same sentence: Very Funny!
and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first
made it clear that when our government gives its word itwe means it. Comment [Lookout23]: Note to Chinese
authorities: When the Government gave its word
when you bought our securities, Tim Geithner meant
For all the challenges we face, we still have a diverse and resilient financial system. The process that he would repay you with inflated dollars.
of repair will take time, and progress will be uneven, with periods of stress and fragility. But Comment [Lookout24]: that is stuck in neutral
waiting for the government to stop this non-sense
these policies will work. We have already seen that where our government has provided support
and financing, credit is more available at lower costs. Comment [Lookout25]: And new policies to
redistribute wealth have been implemented.

But as we fight the current crisis, we must also start the process of ensuring that a crisis like this
will never happens again. As President Obama has said, we can no longer sustain 21st century
markets with 20th century regulations. Our nation deserves better choices than, on the one hand,
accepting the catastrophic damage caused by a failure like Lehman Brothers, or on the other
hand being forced to pour billions of taxpayer dollars into an institution like AIG to protect the
economy against that scale of damage. The lack of an appropriate and modern regulatory regime
and resolution authority helped to cause this crisis, and it will continue to constrain our capacity
to address future crises until we put in place fundamental reforms. Comment [Lookout26]: Fair enough. CDS and
CDO were out of control. But weren’t they an
essential element of the government sponsored
Our goal must be a stronger system that can provide the credit necessary for recovery, and that housing boom?
also ensures that we never find ourselves in this type of financial crisis again. We are moving
quickly to achieve those goals, and we will not restkeep at it until we have done so. Comment [Lookout27]: Keep at it sound like a
teenager trying to learn the violin. Yikes!

Mr. Geithner is the U.S. Treasury secretary.