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Bailout update: Details of Troubled Asset Relief Program


October 15, 2008
On Monday morning Interim Assistant Secretary for Financial Stability Neel Kashkari made his first public appearance at a press conference before the Institute of International Bankers. His speech detailed the progress of the Treasury Department in implementing the Troubled Asset Relief Program (TARP), the main vehicle for the Emergency Economic Stability Act of 2008 passed on Oct. 3 that gave the Treasury Department the authority to purchase troubled assets with up to $700 billion of government funds.

Coming off the market's worst weekly showing in the history of the Dow Jones Industrial Average, Kashkari's comments on Monday were full of optimism that reflected the day's gains on Wall Street. He assured the Institute that "our nation has worked through every economic challenge we have faced" and that "we are confident this new program will help us overcome these challenges, as well."

Kashkari outlined his speech in sections beginning with Treasury's strategy and then moving on to how that strategy has been implemented thus far and finally what the next steps will be. With Treasury's newly granted powers at the forefront of public and private scrutiny, Kashkari said the departments new authority would be put towards "one simple goal — to restore capital flows to the consumers and businesses that form the core of our economy." Although the goal is simple, the way there will require "multiple tools," he said.

Throughout the speech, Kashkari emphasized how "quickly, but methodically" Treasury was moving to implement the TARP and turn the economy around, and he made sure to state clearly that its main priority is "to protect the taxpayers by making the best of their money."

In listing the ways in which Treasury has already gotten the ball rolling, Kashkari mentioned that the department created seven teams immediately after the bill was signed into law. Each team represented a different aspect of the crisis so that all factors contributing to the downturning economy could be addressed in an efficient manner. The teams were assigned to the following seven major programs: mortgage-backed securities purchase program, whole loan purchase program, insurance program, equity purchase program, homeownership preservation, executive compensation and compliance.

The recruitment process has also been an extensive part of the last 10 days. Most of the recruits are "interim," like Kashkari himself, so they won't be on the permanent TARP team, but they do have the important job of setting up the actual offices and duties of their respective new positions as well as hiring permanent staff and identifying who will be their permanent successor.

While there have been many recruits by Treasury from both the public and private sectors, Kashkari took the time to mention five key interim officials. Tom Bloom, CFO of the Office of the Comptroller of the Currency, is serving as interim Chief Financial Officer of the TARP. Jonathan Fiechter, deputy director of the IMF Monetary and Capital Markets Department, is serving as interim Chief Risk Officer. Donna Gambrell, director of the Community Development Financial Institutions Fund, serves as the interim Chief of Homeownership Preservation. Don Hammond, deputy director of the Division of Federal Reserve Bank Operations and Payment Systems, serves as the interim Chief Compliance Officer, and Reuben Jeffrey, under secretary of state for Economic Affairs, serves as the interim Chief Investment Officer.

Kashkari also mentioned that on Oct. 6 four notices and requests for proposals were sent out to firms nationwide. The firms had 48 hours to respond and state whether or not they wanted the proposed duties offered. The "jobs" offered were investment management consultant, master custodian, securities asset manager and whole loan asset manager. Ennis Kupp was recently announced as receiving the investment management consultant job that will help the department review the asset manager positions. The master custodian job, which will hold and track the assets that Treasury purchases, as well as run and report on the auctions used to buy the assets, had not been announced as of Monday afternoon but it will be "in the next 24 hours," Kashkari said. The securities asset manager and the whole loan asset manager, who will hold, manage and sell securities and whole loans, respectively, will also be announced some time this week.

In his closing statements, Kashkari stressed the importance of the Financial Stability Oversight Board and how transparent Treasury will be in all of its actions. Kashkari's final message was ultimately a plea for patience on the part of American public.

"A program as large and complex as this would normally take months — or even years — to establish. We don't have months or years," he said. "Hence, we are moving to implement the TARP as quickly as possible while working to ensure high quality execution."

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