Neel Kashkari, the interim assistant secretary for financial stability and U.S. Treasury Secretary Henry Paulson's point man on the $700 billion financial rescue package, provided details Monday about how the department plans to implement the program.
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Speaking to the Institute of International Bankers in Washington, Kashkari outlined organizational details of the department's plan to buy illiquid mortgage-backed securities, large minority equity stakes in troubled financial institutions and individual mortgages. The Treasury recently began promoting the idea of using the funds to buy 5%, 10% or 15% stakes in participating large financial institutions in an attempt to restore the credit markets and encourage the firms to "raise new private capital to complement public capital."
Kashkari's 20-minute speech took place at 8 a.m. Monday, before the U.S. stock markets opened, in an attempt to assure traders the government is taking the right steps to stabilize the markets. In late-morning trade, the Dow Jones Industrial Average was up 485 points.
Based on the statute enacted Oct. 3, the program also will:
- Establish a mechanism to insure troubled assets. Some lawmakers pushed unsuccessfully to have an insurance plan replace the $700 billion purchase package, but in the end Congress only included it as an option.
- Limit bonuses and golden parachutes of executives at financial institutions participating in the plan. Kashkari did not detail the extent of the limitations Treasury will require when it writes rules based on the new law, but he did say there will be different restrictions on executives, depending on whether the program purchases assets, buys equity stakes or in "the rare case" of intervening to stop an impending failure of a financial institution.
The Treasury Department also seeks input through a public request for comments on the "best ideas" for equity stakes and purchased mortgage securities. The deadline is Oct. 27. - Ron Orol
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Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.
