Experts react to economic rescue plan


SIGN-UP: Get breaking news sent to you

The plan to clean up $1 trillion worth of failed mortgages and other bad debt involves a partnership between the government and private investors.

"And we believe that this is one more element that is going to be absolutely critical in getting credit flowing again," said President Barack Obama.

The plan is to take as much a $100 million from the already approved TARP or Troubled Asset Relief Program, and add up to $850 billion in low-interest loan guarantees from the FDIC and Federal Reserve and then tempt private investors to join the government with $30 billion of their own.

Former UC Berkeley economist Christina Romer is now the chair of the president's Council of Economic Advisors.

"The reason the government is coming in at all is to recreate this market, but it's an open bid. That's why we're going in with the private sector, they're going to have money on the line, just like we are," said Romer.

Treasury Secretary Geithner told CNBC it's the best option for taxpayers.

"The alternative of letting it just sit there, let these assets just sit on the balance sheets of banks who are at risk , creating a much longer deeper recession," said Geithner.

At UC Berkeley, economist Brad Delong says if private fund managers will be bid on the mortgage backed securitys and won't over pay because some of their own money is on the line.

"I think that's still the major criticism that you can make of this program that given the size of the financial markets and the size of the economy, that this is still a little bit too small," said Delong.

Delong says if private investors are willing to partner with the government the potential is there to make a lot of money.

Banks could unload the mortgages and have more money to lend to business, which would then be able to grow and hire more people, which would result in lower unemployment and could ease fears that we're going into a depression.

"And when that goes away, asset prices rise some more, as people become optimistic and so not only does the unemployment rate fall but the government and its partners make a bunch of money, and that's what the Geithner plan is," said Delong.

There is concern the private sector would reject a partnership deal with the government -- out of fear that the terms of the deal could change.

A proposed 90 percent tax on AIG bonuses is fueling that concern, and it's one reason the president is pulling back his support for that tax.

       Today's latest headlines | ABC7 News on your phone
Follow us on Twitter | Fan us on Facebook | Get our free widget

Copyright © 2019 KGO-TV. All Rights Reserved.