- The Washington Times - Tuesday, October 14, 2008

When you have a $700 billion bankroll, you have no trouble filling a room.

In his maiden speech as the Bush administration’s bailout czar, Treasury Department official Neel Kashkari on Monday told an overflow crowd of international bankers that the government already has taken steps to implement the emergency rescue package and begin rebuilding the U.S. financial system.

Although the logistical problems are immense, “we don’t have months or years,” Mr. Kashkari said. “We are moving to implement [the rescue plan] as quickly as possible while working to ensure high-quality execution.”

President Bush signed the bailout legislation on Oct. 3, allowing the government to spend up to $700 billion in taxpayer funds to clear up “toxic” mortgages and mortgage-related loans that have brought the country’s financial system to its knees.

The 35-year-old Mr. Kashkari, a top aide to Treasury Secretary Henry M. Paulson Jr., said U.S. regulators are considering several ways to spend the $700 billion, including, in some cases, having the government take direct ownership stakes in the banks that are assisted.

The government may spend as much as $250 billion on nonvoting shares of banks and other financial companies, sources told Bloomberg News last night. The Federal Deposit Insurance Corp. also is considering insuring newly issued bank debt for three years, they said.

He said that the Treasury will impose limits on executive compensation for banks and financial firms that benefit from the rescue operation and that the government is eager to include small businesses and women and minorities among the private contractors working on the program.

The equity purchase program, which Mr. Paulson originally resisted, “will be voluntary [for banks] and designed with attractive terms to encourage participation from healthy institutions,” he told the forum sponsored by the Institute of International Bankers.

A similar program, pushed by British Prime Minister Gordon Brown, has taken a much more aggressive tack. The British government Monday said it was purchasing a controlling share in Britain’s three biggest banks for $68 billion.

Mr. Kashkari revealed several details about his startup operation. Five senior bureaucrats, drawn from the State Department, the Federal Reserve and other agencies, have been recruited to help set up the Office of Financial Stability on an interim basis.

The Troubled Asset Relief Program, or TARP, has seven policy teams dealing with buying troubled mortgages; buying mortgage-backed securities; setting up an asset insurance program for banks; making direct purchases of bank stocks; preserving homeownership; setting limits on executive pay; and increasing oversight.

“Our goal is to use the multiple tools enabled by the TARP to attack the capital and troubled asset problem from multiple directions, so American families and businesses can get the credit they need,” Mr. Kashkari said.

But he gave no date on when the first deals would be struck and did not take questions from the audience after his prepared remarks, even with a long line of reporters and television cameras trailing him as the left the Georgetown hotel.

Bert Ely, an Alexandria-based financial industry consultant, said the speech left many key questions unanswered and many details hanging.

“We still don’t know exactly how they will buy the [bank] shares and assets, how they will determine the price and what kind of equity the government will be getting,” Mr. Ely said. “This is not going to roll out as fast as people think.”

The investment consulting firm Ennis Knupp & Associates won one of the program’s first competitive bids to review proposals from asset management firms, and the law firm Simpson Thatcher & Bartlett will advise the Treasury on how to structure the program to buy ownership shares in troubled banks.

Mr. Kashkari said contracts to track the troubled assets under the program, to manage the sale of mortgage-backed securities and to sell off the mortgage loans acquired by the government all will be awarded in the next few days.

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