We do not want the Government to assume all risks

Wall Street seems to believe, but the party is far from over. Six weeks after having seen its first plan of "financial stability" changed by the markets, the Secretary of the Treasury, Timothy Geithner, persists and signs. It is a public-private partnership to bail out the U.S. banking sector. With more details this time, his new plan to purge the financial sector and its "toxic assets" was allowed, yesterday morning, by a rebound net banking values.

With a direct investment of the limited Treasury between 75 and 100 billion dollars, this new plan on the competition of the Fed and the private sector to "absorb" between 500 and 1,000 billion "toxic assets", these derivatives at the heart of the banking crisis. A challenge at the time where the financial sector alarm projects of taxation of the bonus of the US Congress.

"We can not resolve this crisis without possible risks by investors." "If the crisis was caused by banks who took too many risks, the danger is now that they do are not enough," the Treasury Secretary said yesterday. The philosophy of the Geithner plan is to shed the banks of their toxic assets (carefully renamed "legacy assets", historical assets) through a public-private partnership, to unfreeze the credit markets. "We do not want the Government to assume all risks." "We want the private sector is working with us", he insisted. It builds on the participation of capital-investment (Blackrock, Carlyle, KKR...) and hedge fund firms, but also private insurers and pension funds.

According to the two parties presented yesterday by the Treasury which aims both to unblock the market of the "legacy loans" (doubtful) and the "legacy securities" (toxic assets), the Federal Deposit Insurance Corporation (FDIC) will be assigned the auction of "pools of assets", the best bidder having access to the public-private program guaranteeing 50 of the required capital. If the seller accepts the purchase price, the purchaser will receive financing by issuing debt guaranteed by the FDIC. With a leverage of 1 to 6. Once the asset is sold, the private fund managers will get control of the management of the assets until their liquidation.

Temporary nationalization in addition, the plan provides for the extension of the TALF ("Term Asset-Backed Securities Facility") program launched by the Fed and the Treasury in a series of toxic assets backed by real estate loans (RMBS, CMBS and ABS...)

"We are the United States of America, not the Sweden," explained yesterday Timothy Geithner in response to criticism of the Nobel Prize in economics Paul Krugman, who sees it as a simple attempt to "recycling of the Paulson plan. In an editorial published by the "New York Times", Paul Krugman, which campaigns fervently for nationalization temporary banks on the Swedish of the 1990 model, j. unrealistic this plan, which aims to "use the money for the taxpayer to inflate the price of toxic assets." The question remains whether if private investors consider the mechanism sufficiently attractive to shed their doubtful assets banks. The bet is especially dared comes at a time where the House of representatives comes to vote, in a very large majority, a 90 tax on bonuses of the companies that received federal aid. Even if the Senate is more reluctant, private investors are likely to look twice before participating in this program.

To curb the fervour of the Congress, the Secretary of the Treasury has not hidden yesterday that it will take "a balance" on the regulation of the bonus. Treasury considers moreover that candidates for this public-private program should not be subject to the cap of the bonus. Not easy to simultaneously handle the carrot and the stick.