be a bit of iteration on terms to make sure that we’re getting the balance basically right.
Q Mr. Secretary, how will you know this is working, on the loans and securities? And more importantly, how will the taxpayers know it is working? What’s the metrics you’ve developed here or all developing?
SECRETARY GEITHNER: The best metric is to watch what happens to the capacity of people to borrow, and the price of credit and the price of these assets. That’s the ultimate test.
You won’t be able to fully judge from participation because the existence of these facilities will affect behavior and incentives. You know, in some sense it operates like a backstop. So you can have a backstop facility have big effects on behavior and on the basic dynamics and markets, even if there’s relatively limited use. The best thing to watch, again, is what’s happening to issuance of securities — just like you saw last week with the first funding of the TALF. Look what happened — overall issuance — look what’s happening to risk — credit risk in markets. That will be the ultimate test.
Q Do you have a goal –
SECRETARY GEITHNER: More important than me doing a target for what happens to credit — no. I think again, if you — you want to look at the overall pattern of availability, credit borrowing and in some ways the price — it’ll be the best measure. And, you know, there’s some markets where you’ve seen very substantial changes — best example is the mortgage markets now, where interest rates have come down very dramatically, you’re seeing refinancing rates really surge. But other parts of the credit markets, too, you’re seeing issuance start to increase and spreads start to come down. That’s the best measure.
Q Looking at the example you give in the fact sheet — the first program — you start with talking about $100 in bank loans, but the private investor only has to kick in $6 for — seems to be on the hook for $6 at the end of the day, and the FDIC guarantees between there and whatever was paid for the bad loan.
Do you think a person outside this room, outside the Beltway, looking at that would feel like that’s a — you know, you’ve gotten a good deal by getting someone to kick in $6 for a loan that is valued at a $100, that’s being purchased for $84.
SECRETARY GEITHNER: I’m very confident you and your colleagues will do a good job of framing this thing — (laughter) — but let me just come back to the basic point. Okay? The point is, relative to what? What our job is, is to try to fix this problem in our financial system at least cost to the taxpayer and ways to get the incentives right so we can have private capital come in and not have the government do all of it.
And the alternative strategies would have the government either taking on all that risk ourselves, having all those losses on our balance sheet — or, sitting back