Treasury Department Recruits Firms to Buy Back Toxic Assets

Kashkari appointed head of $700 billion bailout relief program

stockfigures1After having plunged 875 points in two days, the Dow Jones Industrial Average only improved by 99 points by mid afternoon, despite a key rate cut of one-half point to 1.5% made by the Federal Reserve. Many central banks across the nation, including those in Europe, Canada, England, Sweden, and China, also cut rates, but markets showed no immediate positive changes.

The White House reports that finance ministers and central bank governors from the Group of Seven nations and other leaders will meet this weekend. “Nations around the world, especially in Europe, are facing severe shortages of their own,” said President Bush as he addressed executives at Guernsey Office Products Inc. in Chantilly, Virginia, yesterday. “So this isn’t a problem just in the United States. It’s a problem that is worldwide.”

Nationwide, the U.S. Treasury Department is gearing up to implement the Troubled Asset Relief Program (TARP) authorized under the $700 billion Emergency Economic Stabilization Act that Congress hesitantly approved and President Bush signed Friday. Under TARP the secretary of the treasury is authorized to purchase, insure, hold, and sell a wide variety of financial instruments.

Now the Treasury is seeking to build public and private partnerships with asset managers and private equity firms who can help them manage the buyback of the bad mortgage debt which has frozen credit markets. The Treasury set a deadline of 5 p.m. (EST) today for financial institutions interested in providing infrastructure, wholesale, and security asset management services for a portfolio of troubled mortgage-related assets. Monday, the Treasury posted three solicitations requesting financial agents to provide services to execute TARP effectively. Financial institutions seeking to procure contracts are scrambling to meet the 5 p.m. deadline.

Also Monday, Treasury Secretary Henry Paulson named Neel Kashkari, the Interim Assistant Secretary of the Treasury for Financial Stability, head of the Office of Financial Stability that will monitor TARP. Kashkari worked for Paulson at Goldman Sachs before serving as assistant secretary of the Treasury for International Economics and Development in 2006.

Although the relief program stipulates that specific procurements be set aside for certain small businesses, the Treasury says that these are not contracts governed by the provisions of the Federal Acquisition Regulation (FAR), a law that requires certain guidelines to ensure participation of small, disadvantaged, and minority firms.

The Treasury expects that contracts will be awarded using procedures that may not include full and open competition, and that FAR provisions will be used when applicable depending on whether the conditions require “unusual and compelling urgency.”

“To be sure, there are many challenges associated with the design and implementation of the TARP, including determining which assets will be purchased and how prices will be determined,” said Federal Reserve Board Chairman Ben Bernanke yesterday at the National Association for Business Economics 50th Annual Meeting in Washington, D.C.”The Treasury, with the advice and cooperation of the Federal Reserve, is working to address these challenges as quickly as possible.”

Estimates from the Congressional Budget Office released yesterday

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