Geithner plan offers measure of optimism: Marsico

Marsico Capital Management has responded with cautious optimism to Treasury Secretary Timothy Geithner‘s plan to create a private-public partnership that would buy up banks' toxic assets, while noting its overall lack of detail. Besides the joint public- and private-sector fund to buy as much as $1 trillion of illiquid assets which have clogged up the world's credit markets, the Treasury's package included a $1 trillion programme (a major expansion of an earlier one) to supply new credit to consumers and businesses. John Benson, a VP at Marsico, said that "while I welcome the spirit of the plan, the market reaction underscores the consensus about its lack of detail." Marsico is sub adviser to Gartmore's US Opportunities and SICAV US Opportunities Funds.

Among the positive elements, in Marsico's view, is an expansion of the consumer and business lending initiative. The size of the Term Asset-Backed Securities Loan Facility (TALF) has gone up from the original $200 billion to $1 trillion. This enhanced measure requires no Congressional approval, thus allowing the Federal Reserve to act with immediacy. The Fed's buying of assets should lead to a revival of many securitised credit markets. The public-private partnership for acquiring toxic assets will effectively be a "bad bank" designed to "cleanse" $1 trillion worth of "legacy" assets from bank balance sheets. That Geithner intends to capitalise this bad bank partly with private money would appear to imply that the toxic assets could benefit from some government guarantees. "We remain of the view that it is a question of when, not if, there will be a recovery," commented John.