Quasi-Gov Fund to Buy Bad Loans; Up to $1T For Lending in Geithner’s plan

A public-private fund of up to $1 trillion to prompt banks to resume lending was among the measures Treasury Secretary Timothy Geithner unveiled today.

Geithner, detailing how the second half of the $700 billion bank bailout fund would be spent, said there will be a public-private fund to buy banks' toxic debt; direct capital injections into banks, and a vast expansion of a previously announced lending program, from $200 billion to $1 trillion.

As anticipated, Geithner did not take as hard a line on bankers' compensation, as President Obama indicated last week. Geithner's plan applies the $500,000 pay cap for executives at companies receiving assistance only to very senior executives, not all employees at bailed-out banks.

However, Geithner remarked: "American people have lost faith in the leaders of our financial institutions and are skeptical that their government has — to this point — used taxpayers' money in ways that will benefit them,"

The markets seemingly reacted unfavorably to his plan, with the Dow dropping 275 points shortly after the announcement.