Trying to make TARP all shiny and new

President Obama and Treasury Secretary Tim
Geithner have a difficult challenge ahead on Monday as they try to rebrand and
overhaul the much-maligned $700 billion financial rescue package and present a
new plan that will likely include a variety of proposals to shore up the
banking sector.

The new plan will be rolled out in several media appearances on Monday,
including during Obama’s first news conference in the East Room of the White
House in the evening. Obama’s expected comments on the plan and the fiscal
stimulus measure making its way through Congress will come hours after Geithner
unveils the “comprehensive financial stability plan” in the ornate
“Cash Room” of the Treasury Building.

{mosads}”I think it will go a long way not so much the dollar amount, but how they
handle it. The more specifics they put on it, the better Congress will feel,
the better people will feel,” said one financial services lobbyist.
“It’s not so much about the dollars as much as how they’ve handled
it.”

The administration has taken several steps in recent weeks to instill public
confidence in the plan and redesign the program from how it was run under the
Bush administration. Treasury released a statement on new lobbying restrictions
on firms receiving money from the Troubled Asset Relief Program (TARP), as the
bailout is formally known. Last week, the administration also issued new rules
on executive compensation and said that chief executives at firms receiving
“exceptional assistance” would be limited to $500,000 in annual
compensation and restricted stock payments.

The Obama administration, analysts say, will likely look for ways to maximize
the impact of the remaining $350 billion, so that Obama does not need to
request additional money from Congress. The TARP program has been roundly
criticized by lawmakers in both parties as well as by three government watchdog
panels. The first $350 billion, analysts and watchdogs said, has shown few
signs of helping banks to increase lending.

“What the markets are looking for is something that can be implemented
right away,” said Steve Verdier of the Independent Community Bankers of
America. “What they’re not looking for is additional legislation right
away.”

One central plank of the new plan will be an effort costing at least $50
billion to reduce home foreclosures. Obama and congressional Democrats have for
months been urging a plan to reduce the stress in the housing markets. They had
publicly backed a proposal by Federal Deposit Insurance Corporation chairwoman
Sheila Bair to reduce foreclosures, but her plan had been the source of
internal disagreements in the Bush administration.

In a letter to Senate Majority Leader Harry Reid last week, Peter Orszag, the
head of the Office of Management and Budget, told senators crafting the fiscal
stimulus package to hold off on the housing sector.

“Any major new housing measures should be considered only after the release of
the administration’s comprehensive proposal,” Orszag wrote. Earlier, Lawrence
Summers, Obama’s head of the National Economic Council, had suggested that a
foreclosure plan would cost between $50 billion and $100 billion.

The Obama administration, analysts said, may also try to expand a consumer
credit program and leverage the remaining TARP funds. Treasury is in the middle
of setting up the Term Asset-Backed Securities Loan Facility (TALF) that relied
on $20 billion in TARP funds to leverage $200 billion in loans in a program run
with the Federal Reserve. The central bank has delayed announcing the start of
the program until later this month.

A central problem, analysts said, is that Treasury must try to craft a broad
plan to avoid the fits and starts and incrementalism that damaged the
reputation of the TARP program under the Bush administration, while also not
seeking additional funds from Congress.

“It’s possible they’ll try to layer so many different components to create
the impression of a very broad reaching response, even though they don’t seem
to be able to identify one central approach that will resolve the tainted asset
problem,” said Lou Crandall, chief economist at Wrightson ICAP.

One plan that had been discussed frequently in recent weeks would see the
administration set up a bank to purchase the toxic assets on the balance sheets
of private banks. That plan prompted many questions, particularly over the
steep cost. At Geithner’s confirmation hearing, Sen. Charles Schumer (D-N.Y.)
said he had heard estimates that such a “good bank, bad bank” idea would cost
between $3 trillion and $4 trillion. Geithner acknowledged the difficulties,
but has not ruled out such a possibility.

Some analysts are expecting the administration to draw a firmer line between
the government helping healthy institutions that need additional money to
survive, and deeply troubled institutions that may be broken up or dissolved.
They say that such a defined split would reassure investors and reduce market
uncertainty.

“I think we’re finally heading to a place that healthy banks are given profit
support and terminally-ill banks start to unwind,” said Joshua Rosner of
Graham Fisher & Company.