Geithner plan welcomed

Big-name investors yesterday warmly endorsed the Obama administration's plan for public-private partnerships to deal with toxic assets in the financial system and stocks rallied after Tim Geithner, the US Treasury Secretary, detailed the proposals.

Bill Gross, chairman of Pimco, the bond fund manager, said “this is perhaps the first win/win/win policy to be put on the table and it should be welcomed enthusiastically. We intend to participate.”

Larry Fink, chairman of BlackRock, the asset management company, said his company would also take part. “I think it is a very important step that the government is assisting private capital and creating new demand for these troubled assets.”

Investors appeared particularly enthused by the prospect that the government would arrange financing for the joint ventures on generous terms.

The only criticism came from economists such as Paul Krugman, the Princeton professor and New York Times columnist, who said the non-recourse government loans would allow the private partners to make large profits if the bets went well, while suffering only limited losses if the bets soured.

Political analysts said the embattled Mr Geithner had won himself a reprieve and regained some control of the economic debate, which had been dominated by political rage over bonuses at AIG, the crippled insurance group. But Mr Geithner remains the lightning rod on Capitol Hill for the perceived failure of the administration to control behaviour at financial institutions.

He said yesterday he understood the public rage, but added that the government had to work with the private sector to fix the financial system.

“This will make it easier for banks to raise capital privately because they will have a cleaner balance sheet,” he said. The government will allocate a total of $75bn to $100bn to the partnerships, which will be leveraged up with loan financing from the Federal Deposit Insurance Corporation and the Federal Reserve.