WASHINGTON A U.S. Treasury-led effort to soak up toxic assets from bank balance sheets could draw in private investors with the right government financing, a senior Treasury official said on Wednesday.
Neel Kashkari, who administers the Treasury's $700 billion Troubled Asset Relief Program, told a U.S. House of Representatives Oversight and Government Reform subcommittee that without financing private investors would pay such low prices for the assets that bank balance sheets would be hurt.
"We've received inbound unsolicited proposals from the private sector saying, 'We have capital on the sidelines, we want to go after these assets,'" Kashkari said.
"One of the key challenges is that there's no financing available to the private sector investors, so by marrying government capital -- taxpayer capital -- with private capital and providing financing, you can enable those investors to go after those assets at a price that makes sense for investors and a price that makes sense for the banks," he added.
Kashkari said the program, which is expected to be detailed by Treasury Secretary Timothy Geithner in coming weeks, would put public capital alongside private capital in purchasing assets, so that "if private investors win, taxpayers win."
Kashkari's comments about the need to provide financing echoes what many investors have said in recent weeks, with hedge funds, private equity firms and money managers saying that the government must provide leverage in order to attract interest in buying up toxic assets.
"MAD AS HELL"
Public opinion has soured on the government's efforts to rescue banks as the economy has continued to deteriorate and many businesses and consumers have trouble obtaining loans.
As he has in the past, Kashkari, known as the Treasury's $700 billion man, bore the brunt of congressional frustration over the program.
"I don't think there's a member of Congress that knows where all this money has gone." said Rep. Joseph Barton, a Texas Republican, adding that it would be difficult for him to appropriate more rescue funds if constituents did not understand how banks are deploying the cash.
"People back home are mad as hell about what's going on and they need to have the facts," Barton said.
Kashkari, who was hired by previous Treasury Secretary Henry Paulson, was retained by Geithner to run the TARP capital investment program on an interim basis.
Kashkari said staffing issues were not delaying the program, but many complex issues involving the Federal Reserve and bank regulators needed to be worked out.
He also said it was "dangerous" for Washington to dictate to banks receiving government capital injections how to lend.
"However well-intended, government officials are not positioned to make better commercial decisions than lenders in our communities," Kashkari said. "The government must not attempt to force banks to make loans whose risks they are not comfortable with or attempt to direct lending from Washington."
Kashkari said the actions taken by the Treasury last year to implement TARP, along with actions by the Federal Reserve and Federal Deposit Insurance Corp., helped save the U.S. financial system from collapse.
He said he "regrets" that the government had to step in to prop up several major financial institutions in recent months that posed systemic risks, but said the government had no choice.
Kashkari noted that bank lending levels had held up "remarkably well" despite the worst recession in decades, and new procedures implemented by the Obama administration would require banks to indicate prospective use of government funds.
"Without capital from Treasury, lending levels would likely have been much lower," he said.
(Editing by Leslie Adler)