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A TARP for the financial storm

Treasury\'s bailout point-man reveals some details of program.

Federal News Network Staff

October 13, 2008 3:21 pm

5 min read

By Max Cacas
FederalNewsRadio

The Treasury Department has begun to offer some tantalizing glimpses into how the financial bailout plan will be implmented.

The agency’s point-man on the bailout offered a progress report during an early morning speech to investment bankers meeting here in Washington on Monday.

The event was a morning breakfast session for the Institute of International Bankers, held at the Four Seasons Hotel in Georgetown.

Normally, this would have been a fairly sedate early morning meet and greet with the bankers talking shop with as many government financial regulators as they could round up.

But the speech from Neel Kashkari, the new interim assiostant Treasury Secretary for Financial Stability, drew lots of interest, in part, because this is the first time anyone from the administration has talked in a significant way about how this bailout, officially known as the Troubled Asset Relief Program (TARP) is actually going to work.

In his speech, Kashkari first said that he is putting together seven teams that are working out the details of the bailout program.

Mortgage-backed securities purchase program: This team is identifying which troubled assets to purchase, from whom to buy them and which purchase mechanism will best meet our policy objectives. Here, we are designing the detailed auction protocols and will work with vendors to implement the program.
Whole loan purchase program: Regional banks are particularly clogged with whole residential mortgage loans. This team is working with bank regulators to identify which types of loans to purchase first, how to value them, and which purchase mechanism will best meet our policy objectives.
Insurance program: We are establishing a program to insure troubled assets. We have several innovative ideas on how to structure this program, including how to insure mortgage-backed securities as well as whole loans. At the same time, we recognize that there are likely other good ideas out there that we could benefit from. Accordingly, on Friday we submitted to the Federal Register a public Request for Comment to solicit the best ideas on structuring options. We are requiring responses within fourteen days so we can consider them quickly, and begin designing the program.
Equity purchase program: We are designing a standardized program to purchase equity in a broad array of financial institutions. As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions. It will also encourage firms to raise new private capital to complement public capital.
Homeownership preservation: When we purchase mortgages and mortgage-backed securities, we will look for every opportunity possible to help homeowners. This goal is consistent with other programs, such as HOPE NOW, aimed at working with borrowers, counselors and servicers to keep people in their homes. In this case, we are working with the Department of Housing and Urban Development to maximize these opportunities to help as many homeowners as possible, while also protecting taxpayers.
Executive compensation: The law sets out important requirements regarding executive compensation for firms that participate in the TARP. This team is working hard to define the requirements for financial institutions to participate in three possible scenarios: One, an auction purchase of troubled assets; two, a broad equity or direct purchase program; and three, a case of an intervention to prevent the impending failure of a systemically significant institution.
Compliance: The law establishes important oversight and compliance structures, including establishing an Oversight Board, on-site participation of the General Accounting Office and the creation of a Special Inspector General, with thorough reporting requirements. We welcome this oversight and have a team focused on making sure we get it right.

Kashkari also talked about some of the people he has asked to help administer the TARP program:

Tom Bloom, CFO of the Office of the Comptroller of the Currency and former CFO of the Commerce Department to serve as the interim Chief Financial Officer. Tom brings 30 years of financial management and reporting experience in both the public and private sectors.
Jonathan Fiechter, Deputy Director of the IMF Monetary and Capital Markets Department in charge of financial supervision and crisis management, formerly Board member of the Resolution Trust Corporation and the FDIC, to serve as interim Chief Risk Officer. Jonathan has more than 30 years experience that spans Treasury, the OCC, OTS and the World Bank.
Donna Gambrell, Director of the Community Development Financial Institutions Fund and former Deputy Director of Consumer Protection and Community Affairs of the FDIC to serve as interim Chief of Homeownership Preservation. Donna brings 17 years of experience at the FDIC, preceded by invaluable experience at the Resolution Trust Corporation.
Don Hammond, Deputy Director of the Division of Federal Reserve Bank Operations and Payment Systems and former Treasury Fiscal Assistant Secretary to serve as interim Chief Compliance Officer. Don brings 23 years of experience at the Treasury in fiscal operations, including developing policy for and overseeing operations for the Federal government’s financial infrastructure.
Reuben Jeffrey, Under Secretary of State for Economic Affairs and former Chairman of the Commodity Futures Trading Commission (CFTC) to serve as interim Chief Investment Officer. His public sector experience includes serving on the President’s Working Group on Financial Markets and as a Special Advisor to the President for Lower Manhattan Development. He brings 18 years of private sector experience in financial services.

In addition, Kashkari noted that the Treasury Department is now working out details of the procurement portion of the TARP program, under which the agency is expected to begin using some of the $700 billion approved by Congress to buy up the troubled mortgages.

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On the Web:

Dept. of Treasury – Treasury Announces TARP Capital Purchase Program Description (press release)

Dept. of Treasury – Interim Assistant Secretary for Financial Stability Neel Kashkari Remarks before the Institute of International Bankers (press release)