Asset relief program chief targets consumer loan market
WASHINGTON - The Treasury is pursuing plans to use part of the $700 billion bank rescue to purchase securities tied to consumer loans to bolster an economy still facing "challenges," the head of the program said.
"The consumer securitization market appears to be a promising opportunity," Neel Kashkari, the assistant secretary in charge of the Troubled Asset Relief Program, said yesterday. "This would help bring down rates of auto loans, credit cards, and student loans, and could be achieved with a more modest allocation from the TARP."
Kashkari is implementing Treasury Secretary Henry Paulson's plan to shore up financial firms, which has come under criticism for abandoning its original intent of buying bad mortgage assets in favor of injecting capital into firms. The Treasury has committed $290 billion so far in purchasing preferred shares in banks and the insurer American International Group Inc.
The Treasury official defended the change in emphasis as being the best way to restore confidence in financial firms.
"The TARP is focused on stabilizing the financial system," Kashkari said. "It is not an economic stimulus program; it is not an economic growth program."
Paulson Tuesday clashed with lawmakers over the purpose of the program. Representative Barney Frank, a Massachusetts Democrat, said "the bill couldn't have been clearer" in being aimed at helping homeowners reduce foreclosure.
Kashkari, who came under similar criticism at a congressional hearing last week, said Paulson is "committed to helping avoid preventable foreclosures." He reiterated Paulson's position that the funds shouldn't be used to help struggling US automakers, an idea some Democrats are pushing.
Senators including New York Democrat Charles Schumer are calling on the Treasury to issue rules requiring banks that accept TARP funds to use the money to lend, rather than to acquire other institutions.
Kashkari said banks have "strong economic incentives" to use the money to increase lending.
On Nov. 12, Paulson said the Fed and his department were working on a backstop facility for asset-backed securities, with funds from the TARP. Details haven't been unveiled.
"Many of the details are still being worked out," Kashkari said. "Although we are not currently planning to initiate another capital program beyond this already announced, an emphasis on additional capital seems to be an appropriate focus today." 