Stocks soared yesterday after Treasury Secretary Tim Geithner detailed his proposals for public-private partnerships to deal with toxic assets in the financial system and prominent investors vowed to take part in the programme.
Investors appeared enthused by the prospect that the government would arrange financing for the joint ventures on generous terms. Senior private equity executives said the key terms yesterday went beyond their own wishlists.
'This will make it easier for banks to raise capital privately because they will have a cleaner balance sheet,' Geithner said yesterday. The government will allocate $75bn (£51bn) to $100bn, which will be leveraged up with loans from the Federal Deposit Insurance Corporation and the Federal Reserve.
In a radical departure, the Fed said it will provide loans to investors willing to buy toxic 'legacy' securities – including risky subprime mortgage-backed securities no longer rated triple A – for the first time. The central bank and the Treasury yesterday issued an unusual joint statement setting out their relative responsibilities for fighting the crisis.
The S&P 500 rose more than 7%, the biggest one day advance under the Obama administration
Financial Times, Daily Telegraph