US details $1trn toxic asset plan









The United States tried to persuade private investors today to take on huge sums in banks' toxic assets, while the IMF warned of a drastic rise in unemployment that might threaten democracy in some countries or even provoke war.



Wall Street jumped on the US government's offer of financing for investors aimed at unburdening banks of up to $1 trillion in soured mortgages and other distressed assets that are blocking lending and worsening the recession.

With banks likely to be beneficiaries of the plan, shares in Citigroup and Bank of America soared. Japanese and European shares also leapt and oil rose above $53.

China helped the mood, promising to keep buying US government debt and offering to help fund International Monetary Fund bailouts for stricken countries.

But Beijing also proposed a sweeping overhaul of the monetary system, saying an IMF accounting unit could replace the dollar over time as the world's main reserve currency.

US Treasury Secretary Timothy Geithner said creating public-private partnerships to buy toxic assets from banks would help avert a longer, deeper recession and make it easier for banks to raise private capital.

But he said the government could not bear sole responsibility to get credit markets working properly.

"For these programs to work, investors have to be prepared to take some risk," he told reporters.

Geithner is under fire for his handling of the economic crisis and big bonuses paid out by financial firms that have received billions of dollars in bailouts funded by US taxpayers.

Earlier, an Obama administration official said the Treasury plans to pitch in with $75 billion to $100 billion to launch public-private partnerships.

The money, taken from a $700 billion financial rescue fund approved by Congress in October, would be put alongside private capital and then leveraged up to $500 billion, or possibly double that amount.

Two of the largest US money managers, BlackRock and PIMCO, expressed interest in joining the toxic asset scheme.

"This is perhaps the first win/win/win policy to be put on the table and it should be welcomed enthusiastically," Bill Gross, PIMCO's co-chief investment officer, told Reuters.

Last month, financial markets fell after the Obama administration offered only a bare outline of the proposed public-private partnerships.

This time the reaction was more positive. Japan's Nikkei average rose 3.4 percent to its highest close in seven weeks. The pan-European FTSEurofirst 300 was up 2.5 percent, with financial sector stocks the major gainers.

Leading US stock indices were up more than 3 percent in morning trade.

Shares in troubled bank Citigroup soared more than 18 percent while Bank of America was up 15 percent. Both are major holders of the kind of troubled assets covered by the plan.

US government bonds were mixed, while the dollar gained as investors weighed the potential impact on the debt securities often used as a safe haven in turbulent markets.

"I think there are still some lingering concerns about the details of the plan, specifically at what price the government will buy the assets. So we're seeing the dollar rise a little bit because of this," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

In the real economy, the outlook was worse than ever.

"Bluntly the situation is dire," IMF Managing Director Dominique Strauss-Kahn said.

As the crisis spreads to developing countries, millions of people will be pushed back into poverty, he told a meeting at the International Labour Organisation in Geneva.

"All this will affect dramatically unemployment and beyond unemployment for many countries it will be at the roots of social unrest, some threat to democracy, and maybe for some cases it can also end in war," he said.

The prerequisite for success was restoring a healthy financial sector, he said, adding that although bank bailouts were politically unpopular, businesses and households could not survive without a working banking system.

The enormous cost to the US government of stimulating the economy and bailing out banks has raised questions about its top-level credit rating. But China offered a little relief, saying it would continue to invest part of its huge foreign currency reserves in US Treasury bonds.

"Investing in American Treasuries, as an important part of our foreign exchange reserve management, will continue," Hu Xiaolian, a vice governor of the People's Bank of China, told a news conference on China's preparations for summit of Group of 20 major developed and developing nations in early April.

PBOC chief Zhou Xiaochuan outlined how the dollar could eventually be replaced as the world's main reserve currency by the IMF's Special Drawing Right, now an accounting unit.

"The desirable goal ... is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies," he said.

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
sportDidier Drogba returns to Chelsea on one-year deal
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Louis van Gaal would have been impressed with Darren Fletcher’s performance against LA Galaxy during Manchester United’s 7-0 victory
football
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Sport
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
sport
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
Sport
Rhys Williams
commonwealth games
News
Isis fighters travel in a vehicle as they take part in a military parade along the streets of Syria's northern Raqqa province
i100
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Life and Style
fashionLatex dresses hit the catwalk to raise awareness for HIV and Aids
Travel
travel
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

Commercial Litigation Associate

Highly Attractive Package: Austen Lloyd: CITY - COMMERCIAL LITIGATION - GLOBAL...

Systems Manager - Dynamics AX

£65000 - £75000 per annum + Benefits: Progressive Recruitment: The client is a...

Service Delivery Manager (Software Development, Testing)

£40000 - £45000 per annum: Ashdown Group: A well-established software house ba...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform