Bloomberg U.S. Delays Financial Plan as Officials Grapple With Toxic Debt

By Rebecca Christie and Robert Schmidt

Feb. 9 (Bloomberg) -- Treasury Secretary Timothy Geithner delayed the announcement of the Obama administration’s financial-recovery plan as officials debated proposals aimed at addressing the toxic debt clogging banks’ balance sheets.

Some aspects of the plan, to be announced by Geithner tomorrow in Washington, have been settled. They include a new round of injections of taxpayer funds into banks, targeted at firms identified by regulators as most in need of new capital, people briefed on the matter said. A Federal Reserve program designed to spur consumer and small-business loans will be expanded, possibly to include real-estate assets, they said.

Still outstanding is the issue Geithner’s predecessor failed to address: the illiquid assets that have caused the credit freeze. Officials continue to consider a so-called bad bank to buy them, perhaps in cooperation with private investors, such as hedge funds and private equity. It’s unclear how big a role there’ll be for federal guarantees of securities that remain on banks’ balance sheets.

Banks are “looking for clarity, we’re looking for this to be the complete package,” said Wayne Abernathy, an executive vice president at the American Bankers Association in Washington. “If they don’t have the details spelled out they will just freeze the market.”