Wall Street and financial markets around the world rose sharply Monday after the Obama administration unveiled details of a plan aimed at removing billions of dollars in bad debt from the balance sheets of the nation's banks. The Treasury Department says it will offer low interest loans to private investors so they will buy billions of dollars in toxic assets and get U.S. banks lending again.
The U.S. Treasury Department says it has a plan to remove as much as $500 billion in toxic debt from the nation's banks.
Flanked by his economic team, President Obama expressed confidence the plan will get banks to start lending again.
"We believe that this is one more element that is going to be absolutely critical in getting credit flowing again. It's not going to happen overnight," he said.
The administration plans to use money left over from last year's financial bailout package to offer low interest loans to private investors. The loans could help spur investments in bad assets that could ultimately turn a profit when the economy improves.
White House economic adviser Austan Goolsbee says partnering with private investors will insure banks sell their bad debts at a fair price.
"The basic idea is outlining the details of a public-private partnership so that we leverage money from the government with the private sector so that the government doesn't get into the business of overpaying for assets and things like that," he said.
If successful, the White House says the plan could remove as much as a trillion dollars in bad loans so banks can start lending again.
But Congress is divided over the plan. Republican Senator Charles Grassley faced off with Democratic Congressman Barney Frank on CBS's Face the Nation.
"It sure didn't work when [former] Secretary [Henry] Paulson tried to do it," Grassley said. "It is a thing that should have been done starting October 1st and I hope that they follow through with it and I hope it works."
"It is very different than what Secretary Paulson did. What Tim Geithner is proposing and I think he is doing a very good job given the problems he inherited," Democratic Congressman Barney Frank said. "He has, I think, got a very good plan here and let's not forget - one of the things he did was put forward - unlike the Bush administration, an excellent plan to try and reduce foreclosures."
The spike in U.S. foreclosures is widely blamed for triggering the slowdown in the global economy. Economists say losses in the housing market produced the credit freeze which has affected everyone from consumers to large businesses.
Although he downplayed expectations, President Obama said improvements in the housing market provide a "glimmer of hope" that the U.S. economy is moving closer to recovery.