Economic Bailout: Take Two

Neel Kashkari, the interim assistant secretary of the Treasury for financial stability, spoke this morning on the recent steps taken in organizing the bailout. According to Kashkari, the Treasury has moved “quickly—but methodically” in setting up the framework for the Troubled Asset Relief Program (TARP), which was signed into law on October 3.

Kashkari revealed that the bailout plan has so far been addressed by seven policy teams in charge of distinct aspects of the bailout: mortgage-backed securities purchase; whole loan purchase; insurance; equity purchase; homeownership preservation; executive compensation; and compliance. “Throughout this process,” said Kashkari, “we have kept in mind one clear priority: to protect the taxpayers by making the best use of their money.”

The key element of the bailout is the purchasing of troubled assets from the nation’s financial firms, which Kashkari emphasized must be done with utmost care in order to protect the taxpayer’s financial interests. He also cited the importance of avoiding conflicts of interest in choosing which financial firms to support: “Taking aggressive steps to manage potential conflicts of interest is essential because firms with the relevant financial expertise may also hold assets that become eligible for sale into the TARP.”

The Treasury will also make extra efforts to extend financial assistance to smaller businesses, asking “vendors to demonstrate their ability and commitment to working with small, veteran, minority and women-owned businesses as sub-contractors.”

As its advisors, the Treasury has chosen Ennis Knupp as its investment management consultant, and Simpson Thatcher [sic] as its advisor on equity program structuring. The Treasury is still reviewing candidates for securities and whole loan asset managers, as well as the master custodian firm, which will hold and track the purchased assets.