Geithner to Leverage Tarp for Private Buyers

Date: Wednesday, February 11, 2009
Author: Michael Gray, NY Post.com

Treasury Secretary Tim Geithner's plan to lure private-equity firms and hedge funds into snapping up illiquid assets could involve leveraging $100 billion from the second phase of the TARP program to cover guarantees that would protect these private buyers from losses, sources said.

According to people familiar with the matter, the leveraged portion of the Troubled Asset Recovery Program would back the $200 billion Term Asset-Backed Securities Loan Facility (TALF) that Geithner launched in November as president of the New York Fed to buy troubled consumer debt, such as credit cards, auto loans and student loans.

Treasury officials believe that by guaranteeing the consumer loans under TALF, hedge funds and private-equity firms would buy the underlying asset-backed securities, which in turn would spur future lending. Commercial mortgages - long seen as a potential problem area - would be included under the revised TALF plan.

According to hedge-fund sources, Treasury would guarantee returns on the paper and repurchase illiquid assets that lose money.

News of this plan has been circulating in the markets for about a week as Treasury officials worked with industry on the plan.

The few publicly traded companies that would benefit have seen large moves to the upside. Blackstone Group, whose founder Pete Peterson was an early supporter of President Barack Obama, has risen 23.8 percent over the last week, while Fortress Investment Group rose 23.6 percent and BlackRock was up almost 11 percent in the last week.

The plan marks a change from Treasury wanting to entice private-equity firms and hedge funds into buying toxic mortgages now on bank balance sheets, and helps Uncle Sam avoid having to inject significant capital in exchange for stakes in the banks, which would be a de facto nationalization of the financial institutions involved.

mgray@nypost.com