The Obama Administration laid out plans yesterday to marshal an extraordinary $3 trillion to stabilise America's stricken banking sector and revive its collapsing economy. US shares dropped sharply despite an unprecedented few hours of emergency government action.
First, President Obama's Treasury Secretary unveiled a sweeping new rescue plan for the US banking system that could amount to at least $2 trillion. It involves a combination of taxpayers' and private money to help to free up the country's frozen credit markets and to save the financial sector from collapse.
Timothy Geithner's appearance unsettled Wall Street mainly because business leaders were concerned about the lack of detail in his plan. Two hours later an entirely separate plan - Mr Obama's $838 billion economic stimulus package aimed at creating jobs and reviving the economy - was narrowly passed by the US Senate, but in the face of almost unanimous Republican opposition. Needing 60 votes to avoid blocking tactics, the Bill attracted 61, with only three moderate Republicans backing it.
When Mr Obama was told of the Bill's passage during a rally in Fort Myers, Florida, he said: “That's good news. It's a good start.” Yet Mr Obama set himself tough benchmarks - as he did at a prime-time news conference on Monday night, part of a campaign to sell the stimulus package to the US public - in essence conceding that his presidency would succeed or fail on his ability to turn the economy around. He pledged that his stimulus plan would create or save three to four million jobs within two years. “If people don't think I've led the country in the right direction, you'll have a new president.”
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Mr Obama was appearing in Fort Myers because it has one of the highest home repossession rates in America. At one point a homeless woman, Henrietta Hughes, broke down as she told Mr Obama of her plight. He walked into the crowd, kissed her on the cheek, and said: “We're going to do everything we can to help you.”
In Washington Mr Geithner was bleak in his assessment of the banking sector because of its inability or unwillingness to lend money. “Critical parts of our financial system are damaged,” he said. “Instead of catalysing recovery, the financial system is working against recovery. This is a dangerous dynamic and we need to arrest it.”
He outlined a plan to stabilise the country's banks, which are burdened with an estimated $1 trillion of toxic, mostly mortgage-related loans. The bad debt crisis could lead to the collapse of more than 1,000 banks in the next three to five years, according to one independent estimate yesterday.
The heart of Mr Geithner's plan is to stabilise the banking system and get credit flowing again by combining the remaining $350 billion left from the $700 billion Wall Street rescue package - passed by Congress last year - with private investment and up to $1trillion of Federal Reserve funds.
The plan is crafted so that Mr Obama does not have to return to Congress immediately to ask for hundreds of billions of additional dollars to inject into the banking system, a move that would be politically difficult because of the US public's antipathy towards the banking sector.
Yet many analysts believe he will be forced to ask Congress for more funds because of the scale of the problems. Mr Geithner appeared to prepare the ground for this, saying that the approach “has to be comprehensive and forceful. There is more risk and greater cost in gradualism than there is in aggressive action. This strategy will cost money, it will involve risk, and it will take time.”
His plan has four main elements. He wants to use part of the remaining $350 billion Wall Street package as seed money to attract up to $1 trillion of private investment to buy up the banks' bad debts. He also wants to pump $100 billion into banks. Third, the Federal Reserve will expand a programme - up to $1 trillion - to jump-start consumer borrowing on items such as credit cards and car loans. Fourth, Mr Geithner wants to commit $50 billion
WTF Barack Hussein Obama??? Where are we getting this freaking money from? This is the great plan from the man who didn't know that he needed to pay taxes....
