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Details on Part II of the banking bailout delayed a day

February 9, 2009 |  5:00 am

Wall Street will have to wait one more day to hear the Obama administration's plans for the next phase of the financial system bailout, including whether a "bad bank" will be created to take rotten assets off lenders' books.

Treasury Secretary Timothy Geithner had been expected to speak today on the administration's ideas, but his address now has been rescheduled for Tuesday.

From Bloomberg News:

Some aspects of the plan have been settled. They include a new round of injections of taxpayer funds into banks, targeted at firms identified by regulators as most in need of new capital, people briefed on the matter said. A Federal Reserve program designed to spur consumer and small-business loans will be expanded, possibly to include real-estate assets, they said.

Obamaandgeithner_2 Still outstanding is the issue Geithner’s predecessor failed to address: the illiquid assets that have caused the credit freeze. Officials continue to consider a so-called bad bank to buy them, perhaps in cooperation with private investors, such as hedge funds and private equity. It’s unclear how big a role there’ll be for federal guarantees of securities that remain on banks’ balance sheets.

Banks are “looking for clarity, we’re looking for this to be the complete package,” said Wayne Abernathy, an executive vice president at the American Bankers Assn. in Washington. “If they don’t have the details spelled out they will just freeze the market.”

The Wall Street Journal reported that the administration hopes to seed the bad bank with capital, but then attract private investors to provide financing and, presumably, to decide which assets to buy and at what prices.

But the Treasury or Federal Reserve probably would have to provide some kind of insurance on the assets to entice investors to join in.

The administration doesn't intend to ask Congress for more money to fund the bailout beyond the $700 billion that Congress approved last fall, Bloomberg reported. Most of the second half of that money still is available. But many analysts assert that saving the banking system ultimately will cost taxpayers far more than $700 billion.

-- Tom Petruno

Photo: Treasury Secretary Timothy Geithner and President Obama at a news conference last week. Credit: Ron Edmonds/Associated Press