Treasury Scales Down Legacy Securities Program

The Treasury Department has decided to put up only $30 billion in capital and debt to fund the first public-private ventures that will invest in pools of non-agency residential and commercial mortgage-backed securities. Originally, Treasury proposed a much larger program to purchase $500 billion in bad assets that were originally triple-A rated from financial institutions but the banks shunned this concept. So the investment funds will purchase legacy securities in the open market to increase liquidity for the toxic MBS. Treasury also picked nine fund managers to raise capital and run the private-public investment funds. These managers, which include BlackRock and Invesco, now have 12 weeks to raise at least $500 million in equity to launch the first funds. Treasury will match the funds' capital and provide financing for the purchase of assets. A senior Treasury official said the Trouble Asset Relief Program would provide $10 billion in equity, $20 billion in debt and the managers are expected to raise $10 billion in equity. So the total amount of equity and debt for this program would be $40 billion. Separately, the Federal Deposit Insurance Corp. has developed a Legacy Loan Program and it is planning a sale of receivership assets in this summer.