U.S. stocks rallied Monday, closing the day up almost 500 points following the Treasury’s unveiling of a plan to help banks get rid of bad assets.
The Treasury unveiled The Public-Private Investment Program as part of its efforts to “repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.” The plan will use between $75 billion and $100 billion in TARP and private investor capital to generate $500 in purchasing power to buy legacy assets.
The Treasury has promised it will “make the most of taxpayer resources” by using government financing in conjunction with the FDIC and Federal Reserve, along with private sector investors. Should there be a downside scenario, the Department says as private sector participants invest alongside with taxpayers, private sector investors stand to lose their investment while the taxpayers shares in profitable returns.
According to the Treasury, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.
The Treasury released the following statement Monday: