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Geithner Reaffirms $1 Trillion to Clean Up Toxic Assets

UPDATED:

Treasury Secretary Tim Geithner, who finished testimony before the Senate Budget committee moments ago, reaffirmed that the cost of cleaning up all the toxic assets clogging the balance sheets of sick financial institutions will be at least $1 trillion.

It is a number Geithner first floated in February and will be made up of some mix of government and private funds.

Sen. Judd Gregg (R-N.H.) pressed Geithner as to whether the government -- meaning, taxpayers -- will guarantee the profits of private investors to lure them into buying toxic assets, but Geithner could not provide a solid answer.

"That depends on the precise structure" of the partnership, Geithner said, but added that "we want to limit the downside exposure of government."

Geithner: Author Smick Is Wrong on Cost of Toxic Assets

12:08 P.M.: Geithner disputed the pricing of toxic assets put forth in a Washington Post opinion piece from earlier this week headlined "Tim Geithner's Black Hole" written by financial author David Smick.

Smick wrote that Geithner's plans to save the big banks will cause another even bigger government bailout because: "Today's true market value of the U.S. banks' toxic assets (that ugly stuff that needs to be removed from bank balance sheets before the economy can recover) amounts to between 5 and 30 cents on the dollar. To remain solvent, however, the banks say they need a valuation of 50 to 60 cents on the dollar. Translation: as much as another $2 trillion taxpayer bailout."

Geithner agreed with the problem of pricing the assets, but said: "I wouldn't agree with those precise examples, but we need to get the market prices up again."

Geithner: Be Careful With Mark-to-Market Accounting Rules

11:50 A.M.: Geithner said that regulatory agencies need to be "very careful" when considering the future of mark-to-market accounting rules, which some say are deepening the ongoing crisis.

Regulators must avoid taking steps that "erode confidence" of investors who are trying to assess the health of balance sheets of corporations, when deciding if to invest.

Simply put, mark-to-market accounting rules, enforced by the SEC and FASB, require a company to value -- or "mark" -- assets on its books based on the price they would bring if they were sold today.

In theory, mark-to-market provides good information for potential investors and prevents businesses from assigning any value they choose -- likely a higher one -- to things they own.

But mark-to-market can cripple businesses when no market for an asset exists, like now.

Some have called for the suspension of mark-to-market accounting to allow the big banks to get back on their feet but others argue against it, saying that killing the accounting rules would give companies incentive to create balance sheets that are pure fiction.

SEC Chairman Mary Schapiro said in Hill testimony yesterday that accountants are likely to get some flexibility in coming months when making mark-to-market judgments;

Geithner: Obama's Housing Plan Will Not Help Irresponsible Borrowers

11:38 A.M.: Geithner said that President Obama's housing plan contains help for homeowners who are deeply underwater -- those whose loan-to-value ratios are 105 percent or more.

Geithner was asked by Sen. Bill Nelson (D-Fla.) what government help is available for especially troubled homeowners -- like those in Florida.

Geithner said that Obama's plans will "not benefit many Americans who borrowed way, way beyond their means" but they will help those Nelson mentioned work down their monthly payments.

Geithner took a little heat from Sen. Jeff Sessions (R-Ala.) who said Geithner had failed to deliver "an honest appraisal of the situation we're facing today." He said Geithner "needs to get out of campaign mode" and accused him of parroting the Democratic party line laid down by David Axelrod, a top political adviser of the president.

Geithner: Banks Still In 'Defensive' Mode

10:34 A.M.: Geithner said that recovery is being impaired by forward-looking markets examining the toxic assets on the books of financial institutions and estimating greater losses if the recession gets deeper.

This has led banks and other lending institutions to maintain a "defensive" posture.

To combat that, Geithner said a more detailed look at these toxic assets is required. "We need to look under the hood more carefully, which we're doing," he said.

You can read Geithner's entire opening statement here.

-- Frank Ahrens
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By Frank Ahrens  |  March 12, 2009; 12:26 PM ET
Categories:  The Ticker  | Tags: Tim Geithner  
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Next: BofA's Ken Lewis: We Won't Need More Bailout Money

Comments

Obama's presidency is collapsing down around him. He needs to resign and let the adults take over now. The Porkulus Bill that he signed is full of earmarks, the kind he was against as a candidate. He says one thing and does another. He can't do anything without a Teleprompter. I think we've been short-CHANGED folks. I think people are feeling more HOPElessness than HOPE at this point. He's an empty suit. All talk, no walk. He's just a BS Artist who talks a good game.

Posted by: twbarr25 | March 12, 2009 11:59 AM | Report abuse

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