WASHINGTON — The banks are getting another dose of bailout money. It’s probably not enough.
Even with the new measures, experts warned that growing bank losses mean the administration will almost certainly need more money — likely hundreds of billions or more — to finally unlock the flow of credit and revive the economy.
“They will definitely have to go back for more money,” said Christopher Whalen, managing director of Institutional Risk Analytics. “There’s doubt that this plan isn’t enough.”
The revamped bailout plan is sweeping in scope but light on specifics. In announcing the plan, Treasury Secretary Timothy Geithner pledged to “fundamentally reshape” the bailout program to “get credit flowing again to businesses and families.”
The plan relies on a complex approach, including more capital injections for banks and a fivefold increase in bailout funding to $100 billion. An extra $100 billion in bailout funding could unlock up to $1 trillion in lending through the Fed’s support program, known as the Term Asset-Backed Securities Loan Facility.
The administration also said it would create a public-private partnership to encourage investors to buy banks’ toxic assets.
Wall Street was hardly convinced. Stocks plunged as the plan was announced —a move analysts viewed as investors’ uneasiness over scant details of how the new steps could improve upon the Bush administration’s stalled rescue effort, called the Troubled Asset Relief Program, or TARP.
Then there’s the matter of size. Banks have at least another $1 trillion in losses to come, experts believe, due to souring mortgage debt and other risky assets on their books. Before banks can start lending, they have to offload these assets — or take on huge sums of fresh capital to dilute their effect.
But less than half of the $700 billion government bailout is left for the Obama administration to spend. That raises questions about how far the government plans to go to prop up ailing banks.
“The only way to do that is to spend more money, and you have to ask where it’s going to come from,” said Edward Yardeni, an independent market analyst.
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