US Treasury chief Timothy Geithner on Tuesday unveiled a new bank rescue plan that would put $2 trillion to work mopping up bad assets and restoring credit, but stock markets plunged on fears it would not work. Meanwhile lawmakers started haggling over the final package of tax cuts after the Senate passd its $838 billion version of the financial rescue plan. President Barack Obama wants the Democratic-controlled Congress to deliver a package by this weekend so he can sign it into law but must keep together a narrow coalition that wants the price tag lower - at about $800 billion.The Senate and House of Representatives must iron out differences between their two bills in what are expected to be marathon talks that could drag into next week. The Senate voted 61-37 on Tuesday to approve its version, with support from just three Republicans. The House had earlier passed its $819 billion package with no Republican support. Global markets waited for a plan to stabilize a financial system tottering under the weight of bad mortgages, but were disappointed over the scant detail he provided. The Dow Jones industrial average closed down more than 380 points or 4.6 percent in its biggest one-day percentage drop since Dec. 1, while prices for U.S. government bonds climbed as investors sought safety. The KBW index of bank stocks fell almost 14 percent. Geithner said lack of public confidence in prior rescue efforts had made it all the more difficult to stop “a dangerous dynamic” in which a lack of credit undercuts the economy and leads to more weakness among banks, worsening the recession. In a televised speech Geithner made his case for how the Obama administration plans to handle the roughly $350 billion left in a $700 billion financial bailout fund approved by Congress in October. Leveraging private money A centerpiece of the renamed “Financial Stability Plan” is a proposal to set up a public-private investment fund, in partnership with the Federal Deposit Insurance Corp, a bank watchdog, and the Federal Reserve, the US central bank. Seeded with public money, of $500 billion to possibly $1 trillion it would work to remove troubled assets from banks. Up to $50 billion of the funds would be used to soften the housing crisis afflicting the entire economy, Geithner said. The plan would also expand a Fed program aimed at expanding credit card, student, auto and small business lending. The facility will grow from its current $200 billion limit to up to $1 trillion, thanks to a jump in Treasury funding to $100 billion from $20 billion. The lending program would be extended to cover a range of mortgage-related assets. Obama said helping banks was a priority and didn't rule out the possibility that more money would be needed. “We don't know yet whether we're going to need additional money or how much additional money we'll need until we see how successful we are at restoring a level of confidence in the marketplace,” Obama said.
