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Saturday, January 31, 2009

[roeoz] US set for ‘big bang' financial clean-up

Posted by AccGURU

The Obama administration is gearing up for a "big bang"
announcement next week that will combine a bank clean-up with measures
to reduce home foreclosures and probably steps to kick-start credit

The plan will involve an overhaul of the troubled asset relief
programme - the $700bn bail-out fund - including strict curbs on
compensation at banks receiving public aid. The Tarp overhaul is
intended to restore public confidence in what is a deeply unpopular
programme and ensure that taxpayer money is not used to fund excessive
pay, bonuses and dividends to shareholders.

"There will definitely be a cap of some sort on bonuses," said a
Wall Street executive who has taken part in talks with the
authorities. "The political climate is such that there is a need to
punish Wall Street."

The announcement will follow Friday's news that the US economy
contracted at an annualised rate of 3.8 per cent in last year's final
quarter - less than analysts were expecting, but still the worst
quarter since 1982. The fall was cushioned by ballooning inventories,
which suggest the economy could shrink faster than expected in the
first quarter.

The "big bang" approach reflects the belief of Tim Geithner,
Treasury secretary, and Lawrence Summers, National Economic Council
director, that the Bush administration was wrong to dribble out policy
initiatives. Mr Geithner intends to present a "comprehensive" plan
that policymakers hope will command market confidence.

Details of the financial overhaul are being finalised and have yet
to be approved by President Barack Obama, but it may include both the
purchase of toxic assets by a "bad bank" and insurance-style
guarantees for problem assets remaining on bank balance sheets.

Anti-foreclosure efforts are likely to focus on subsidising
programmes that reduce unsustainable monthly mortgage payments, though
there may also be support for schemes that subsidise the partial
writedown of loans that exceed the value of the home. Treasury may
also unveil new efforts to revitalise dysfunctional securitisation



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