Gannett News Service
Gannett News Service
WASHINGTON – The Treasury Department is scrambling to scoop up the toxic assets that have frozen credit markets and the economy and sent stocks into a dizzying plunge.
But the job is daunting, the clock is ticking and the work has only just begun.
“There are probably 12 steps to recovery from any addiction,” said Simon Johnson, a professor of entrepreneurship at the Massachusetts Institute of Technology. “I think the U.S. is probably on step two or step three.”
Just Friday, Treasury Secretary Henry Paulson announced the government soon would start buying stock in ailing banks to try to bolster them and their ability to lend.
Already, the Treasury Department has named one of its own senior officials, Neel Kashkari, to engineer the federal government’s $700 billion rescue plan, which Congress recently approved and President Bush promptly signed.
Kashkari, 35, worked as a NASA satellite engineer and Wall Street banker before moving to the Treasury Department two years ago. His keen mathematical mind should serve him well in dealing with the highly complex financial instruments the Treasury Department will weigh in the coming weeks and months.
But he’ll need outside help.
The Treasury Department is scouring the financial community for experts – some from Wall Street – who will have to make the tough decisions on which banks to shore up, which damaged assets to buy and how much to pay for them.
And they will have to do all this on the fly.
Treasury officials have said they expect to begin hiring the necessary staff as early as this week.
On Tuesday, they announced they will start buying what’s known as “commercial paper,” the short-term debt large companies float, usually to expand or buy equipment.
Without these credit lines, large companies could stagnate, shrink or close, laying off thousands of workers.
On Wednesday, the Federal Reserve cut its target for short-term interest rates to 1.5 percent – the lowest level in four years.
But experts predict that, despite the calls for strict congressional oversight, the initial rescue plan will have to be executed so quickly that serious supervision will be almost impossible.
“Mainly what’s going to happen is Treasury is going to do it, and they’ll report back to the public now and then,” said William Gale, director of economic studies at the Brookings Institution. “I just don’t see a strong role for oversight in all this, despite what people say.”
But he added, “The risk of under-reacting here is much bigger than the risk of overreacting.”