by Calculated Risk on 2/09/2009 11:18:00 PM

From the NY Times: Geithner Said to Have Prevailed on the Bailout. According to the NY Times, the plan includes:

[T]he creation of a joint Treasury and Federal Reserve program, at an initial cost of $250 billion to $500 billion, to encourage investors to acquire soured mortgage-related assets from banks.

The Fed will use its balance sheet to provide the financing, and the Federal Deposit Insurance Corporation might provide guarantees to investors who participate in the program, which some people might call a “bad bank.”

A second component of the plan would broadly expand, to $500 billion to $1 trillion, an existing $200 billion program run by the Federal Reserve to try to unfreeze the market for commercial, student, auto and credit card loans.
...
A third component would involve a review of the capital levels of all banks, including projections of future losses, to determine how much additional capital each bank should receive.

The capital injections would come out of the remaining $350 billion in the Troubled Asset Relief Program, or TARP.

Mortgage relief for homeowners will be a separate plan announced next week.

The first and third components are related. The first component sounds like a plan to encourage investors to buy toxic mortgage securities from banks with non-recourse financing from the Fed and possibly some guarantees from the FDIC. One of the keys will be the percent the investors have to put down (skin in the game), but their downside will probably be limited.

This will almost certainly lead to more losses for many banks, and that will require additional capital injections. Apparently Geithner believes the remaining $350 billion in the TARP is sufficient for the capital injections.

Treasury Secretary Timothy Geithner will announce the plan at 11 am EST.