Administration unveils bailout overhaul

[0:37] ..." of American workers. Into the loans that financed a first home a new car -- a college education. And this system provides the capital and the credit necessary to build a company around a new idea."...

[8:08] ..." plan will take a comprehensive approach. The Department of the Treasury the Federal Reserve the FDIC and all the financially disease in our country. We'll bring the full force of the United States government to bear to strengthen"...

[11:14] ..." new financial stability trust. Now second. We will work together with the Federal Reserve with the FTSE and with the private sector to establish a public private investment fund. And this program will provide government capital"...

[12:16] ..." what works. The third piece of this program. Working jointly with a Federal Reserve we're prepared to commit up to a trillion dollars to support consumer and business lending. This initiative will help kick start the"...

[12:54] ..." to businesses large and small. This program will be built on the Federal Reserve's term asset backed securities loan facility. It was announced last November with capital from the treasury and financing from the Federal Reserve. We've agreed to expand this program to target the markets that are critical for small business lending for student loans for consumer"...

[15:26] ..." face a crisis of this severity. We are consulting closely with chairman Chris Dodd in the Senate chairman Barney Frank in the house and their colleagues on both sides of the aisle. On the broad outlines"...

[16:03] ..." level of cooperation here in the United States and around the world. Federal Reserve Chairman Ben Bernanke FGIC chair Sheila bear John -- the comptroller of the currency and John ridge to head of the -- through supervision. I"...

[0:00]" I'm very pleased to announce the secretary of our nation's treasury committee. Thank -- senator -- And thanks to all of you for coming here today. President Obama said in his inaugural address. That our economic strength is derived from the doers. The makers of things. The innovators who create an expanding enterprises. The workers who provide light to companies. This is what drives economic growth. The financial system your banks are central to this process. Banks and the credit markets transformed the earnings and savings of American workers. Into the loans that financed a first home a new car -- a college education. And this system provides the capital and the credit necessary to build a company around a new idea. Without credit economies cannot grow at their potential. And right now critical parts of our financial system are damaged. The credit markets that are essential for small businesses and consumers. Are not working. Borrowing costs have risen sharply for state and local governments for students trying to pay for college and for businesses large and small. Many banks are reducing lending and across the country they are tightening the terms of loans. Last Friday we learned that the economy had lost three million jobs last year and an additional 600000. Jobs just last month. As demand falls and credit tightens. Businesses around the world are cutting back the investments that are essential to future growth. Trade among nations is contracting sharply as finance dries up. Home prices are still falling. That's foreclosures rise. And even credit worthy borrowers are finding it harder to finance the purchase of -- new home -- to refinance their existing mortgage. Instead of capitalizing recovering. The financial system is working against recovery. At the same time the recession is putting greater pressure on banks. This is a dangerous dynamic and we need to arrested. It's essential that every American understands that the battle for economic recovery. Must be fought on two fronts. We have to jumpstart job creation and private investment. And we must get credit flowing again to businesses and families. Without a powerful economic recovery act too many Americans will lose their jobs and too many businesses will fail. And unless we restore the flow of credit the recession will be deeper and longer causing even more damage to families and businesses across the country. -- today. As congress moves to pass the economic recovery plan that will help create jobs and lay a foundation for a stronger economic future. We're outlining a new financial stability plan. Our plan will help restart the flow of credit. It will help clean up and strengthen our banks. And it will provide critically for homeowners and for small businesses. And as we do each of these things we will impose new higher standards for transparency. And accountability. I'm going to outline the key elements of this plan today but before do that analysts say that about how we got here. The cost of this crisis are many and complex. They accumulated over a long period of time and they will take time to resolve. Governments and central banks around the world pursued policies that with the benefit of hindsight caused a huge global boom in credit. Pushed housing prices in financial markets to levels that defy gravity. Investors and banks took risks they did not understand. Individuals. Businesses and governments borrowed beyond their means. The rewards that went to financial executives departed from any realistic appreciation of risk. They were systematic failures in the checks and balances in our system by boards of directors by credit rating agencies and by government regulators. Our financial system operated with large gaps in meaningful oversight and without sufficient constraints to limit risk. Even institutions that were overseen by -- complicated and overlapping system of multiple regulators. Put themselves in a position of extreme vulnerability. And these failures helped lay the foundation for the worst economic crisis in generations. And when the crisis began. Governments were slow to act. When action king it was late in inadequate. Policy was behind the curve always chasing an escalating crisis and -- the crisis intensified. And more dramatic government action was required. The emergency actions that were meant to reassure to provide confidence. Too often added to public anxiety and two investor uncertainty. The dramatic failure or -- from your failure of some of the world's largest financial institutions. Cause investors to pull back from taking risk. Last fall as the crisis intensified. Congress acted quickly and courageously to give your government the emergency authority to help contain the damage. Your government used that authority to help pull the financial system back from the edge of catastrophic failure. And those actions were absolutely essential. But they were inadequate. To force -- government support was not comprehensive -- quick enough to withstand the acute pressure brought on by a weakening economy. And the spectacle of huge amounts of taxpayer assistance provided to the same institutions that helped cause the crisis. Added to public distrust and this distrust turned to anger. As boards of directors at some institutions. Continued to -- rich compensation packages and lavish perks to their senior executives. Our challenge is much greater today because the American people have lost faith. In the leaders of some of our financial institutions and they are skeptical that their government has used taxpayers' money in ways that will benefit them. This has to change. To get credit flowing again to restore confidence in our markets and to restore the faith of the American people we're going to fundamentally reshape. Our program to repair the financial system. Our work will be guided by the lessons -- last eighteen months and by the lessons of financial crises throughout history. And the basic principles that will shape our strategy. Are the following. We believe that policy has to be comprehensive and forceful. There is more risk and greater cost in gradualism then there is an aggressive action. We believe that action has to be sustained into recovery is firmly established. In this country in the 1930s in Japan in 1990s and in many cases elsewhere around the world. Crises lasted longer and they cause greater damage because governments applied the brakes too early. We cannot make that mistake. We believe that access to public support is a privilege not a right. When our government provides support to banks. It is not for the benefit of banks is for the businesses and families who depend on banks and it's for the benefit of the country. Government support has to come with strong conditions to protect the taxpayer. And with transparency and allows the American people to see the impact. Of those investments. We believe that our policies must be designed to mobilize and leverage private capital not just a plant or discourage private capital. When government investment is necessary. To be replaced with private capital as soon as that as possible. And we believe that the United States has to send a clear and consistent message. It we will act to prevent the catastrophic failure of financial institutions that would damage the broader economy. Guided by the principles. We will replace the current program with a new financial stability plan designed to stabilize and repaired the financial system. And to report to support the flow of credit that is necessary for recovery. This new -- to the plan will take a comprehensive approach. The Department of the Treasury the Federal Reserve the FDIC and all the financially disease in our country. We'll bring the full force of the United States government to bear to strengthen our financial system so that we get the economy back on track. Now these agencies each had different authorities instruments and responsibilities. But we -- one government serving the American people. And we will work together as one. And here's -- do. Our work begins with a new framework of oversight and governance on all aspects of our financial stability plan. The American people will be able to see where their tax dollars are going and the return on their government's investment. They will be able to see whether the conditions placed on banks are being met and and forced. They will be able to see whether boards of directors are being responsible with the taxpayer dollars and how they are compensating their executives. And they will be able to see how these actions are affecting the overall -- lending and the cost of borrowing. These new requirements which will be available on a new website financial stability got up would give the American people the transparency that mr. Now he's just these steps build on things we have already done. We have acted to ensure the integrity of the process that provides access to government support. So that it is independent independent and influence from lobbyists and from politics. We've committed to provide the American people with the information on how the money is spent and under what conditions by posting these contracts on the Internet. And importantly we've outlined some strong conditions on executive compensation. Now under this framework. We are establishing three new programs to clean up and strengthen the nation's banks to bring in private capital to restart lending. And to go around the banking system directly to the market to consumers and businesses depend on. Let me describe each of these three steps. First. We're going to require banking institutions to go through a carefully designed. Comprehensive stress test this borrows the medical term. We want their balance -- cleaner stronger and we're going to help this process by providing a new program of capital support for those institutions that need. To do this we're going to bring together the agencies with -- authority over our nation's banks and initiated in more consistent. Realistic forward looking assessment about the exposures on bank balance sheets and we're going to introduce new measures to improve disclosure. Those institutions that need additional capital will be able to access -- new funding mechanism uses capital from the treasury as a bridge to private capital. The capital come with conditions to help ensure that every dollar of taxpayer assistance is being used to generate a level of lending. Greater than what would have been possible in the absence of government support. And this assistance will come with terms that should encourage these institutions to replace public assistance with private capital. As soon as that as possible. The Treasury's investments in these institutions will be placed in Maine new financial stability trust. Now second. We will work together with the Federal Reserve with the FTSE and with the private sector to establish a public private investment fund. And this program will provide government capital and government financing to help leverage private capital to help get private markets working again. This fund will be targeted to the legacy loans and assets that are now burdening many financial institutions. By providing the financing the private markets cannot now provide. This will help start a market for the real estate related assets that are at the center of this financial crisis. Our objective is to use private capital and private asset managers to help provide a market mechanism for evaluating for valuing these assets. Now we're exploring a range of different structures. And will seek input from the public as we design this program. But -- we believe this program should ultimately provide up to one trillion dollars in financing capacity. We plan to started on a scale of about 500 billion and we will expanded based on what works. The third piece of this program. Working jointly with a Federal Reserve we're prepared to commit up to a trillion dollars to support consumer and business lending. This initiative will help kick start the secondary lending markets to help bring down borrowing costs and to help get credit flowing again. In our financial system roughly 40% of consumer lending has typically been made available because people buy loans put them together and sell them. And because this vital source of lending has frozen not. No financial recovery plan will be successful and that's it helps to restart the securitization markets. For sound loans made to consumers and to businesses large and small. This program will be built on the Federal Reserve's term asset backed securities loan facility. It was announced last November with capital from the treasury and financing from the Federal Reserve. We've agreed to expand this program to target the markets that are critical for small business lending for student loans for consumer and auto finance. And for commercial mortgages. Now in addition. Because small businesses are so important our economy we're going to take some additional steps to make it easier for them to get credit from community banks and from large banks. By increasing the federally -- portion of small business association -- administration loans. And by giving more power to the SP can expedite their loan approvals. We believe we can turn around the dramatic decline SBA lending we've seen in recent months. Now finally and this critically important. We will launch a comprehensive housing program. Millions of Americans have lost their homes and millions more who lived with the risk that they will be unable to meet their payments or refinance their mortgages. Many of these families borrowed beyond their means. But many others fell victim to terrible lending practices that left them exposed overextended and with no way to refinance. On top of that homeowners around the country are seeing the value of their homes fall because of forces they did not create and cannot control. This crisis and housing has had devastating consequences. And our government should have moved more forcefully to help contain the damage. As housing prices fall. Demand for housing will increase and conditions were ultimately find a new balance and you're seeing that happen in parts of the country today. But now we risk an intensifying spiral. In which lenders foreclose. Pushing house prices lower and reducing the value of household savings making it harder for all families refinance. The president has asked his economic team to come together. With a comprehensive plan to address this crisis and we will announce the details of this plan in the next few weeks. But our focus will be on using the full resources of the government to help bring down mortgage payments and to help reduce mortgage interest rates. We'll do this with a substantial commitment of resources already authorized by the congress. Under the emergency economic stabilization act. I want to act that looking forward. President Obama is committed to moving quickly to reform our entire system the financial regulation. So that we never again face a crisis of this severity. We are consulting closely with chairman Chris Dodd in the Senate chairman Barney Frank in the house and their colleagues on both sides of the aisle. On the broad outlines of a comprehensive program of reforms. The president's working group on financial markets is beginning to develop detailed recommendations. And we'll start working closely with the world's leading economies. On a set -- broader reforms to the international financial system in preparation for the G twenty summit. In London on April 2. The success of this plan the success of our financial -- plan. Is going to require an unprecedented level of cooperation here in the United States and around the world. Federal Reserve Chairman Ben Bernanke FGIC chair Sheila bear John -- the comptroller of the currency and John ridge to head of the -- through supervision. I want to thank them for helping shape this plan and want to thank them for their commitment to making it work. This program is going to require a substantial. And sustained commitment of public resources. Congress has already authorized substantial resource for this effort and we're going to use those resources as carefully and as effectively as possible. We're going to consult closely with the congress as we move forward and we're going to work together to make sure that we have the resources and the authority to make this work. Later this week I'm going to be traveling to meet with the G 7 finance ministers and Central Bank governors in Italy. And there we will start the process of working with our international partners to ensure that we're working together. To help strengthen the global economy and to help prepare the global financial system. And we will work closely with the leadership of the IMF and the World Bank. So that they can deploy resources quickly to help those countries around the world that are most at risk from this crisis. Now many of the programs -- discussed involved very large numbers. But it's important to recognize that these programs involve loans and investments with terms and conditions that will help protect the taxpayer. And help compensate the government. For the risk we're taking. And because of these terms and conditions the risks of the taxpayers will be less than the headline numbers. Our obligation is designed these programs so that we are achieving the largest benefit in terms of supporting recovery. At the least cost the taxpayer and we take that obligation extremely seriously. But I want to be candid. This strategy will cost money. It will involve risks and it will take time. But as costly as this effort may be. We know that the cost of a complete collapse of our financial system would be incalculable for families and for businesses and for our nation. We're going to have to adapt our program as conditions change. We'll have to try things we never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupt him. But we'll be guided by these core principles of transparency and accountability. Dedicated the objective of restoring credit to families and businesses. And committed to moving our nation towards an economic recovery it is as swift and widespread. As possible. This is the challenge more complex than any challenge our financial system is based it's going to require new programs and extraordinary action. But the president and his entire administration are committed to seeing it through because we know how directly. The future of our economy depends. Thank you very much thank you for coming."