THE US Treasury Secretary, Henry Paulson, is hiring up to 10 asset management companies to join the lawyers and bankers he is recruiting to jump-start the Government's $US700 billion ($900 billion) bank rescue program.
The Treasury began implementing the plan within an hour of the House of Representatives vote giving Mr Paulson the extraordinary powers he had sought to combat the financial crisis in his country. Mr Paulson is seeking to assemble a team to determine which toxic securities to target, how to value them and how to arrange purchases.
"This is something that, for a typical company, would take no less than five years," said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. "Anyone who thinks they can do this in two weeks is insane."
Already BlackRock, Pacific Investment Management Co (known as Pimco) and Legg Mason are seeking to become money managers for the program, insiders said. The three were informally advising the Treasury as it negotiated the bail-out package with Congress, they said.
Ed Forst, the former Goldman Sachs executive who Mr Paulson hired to head the transition team, started work last week and is charged with helping establish the new Office of Financial Stability.
"Paulson did not want to lose precious days waiting," said Howard Glaser, a former chief legal adviser of the Department of Housing and Urban Development.
Treasury officials said Mr Forst, who was given a contract worth $US5000, is likely to stay for several weeks before returning to Harvard University, where he sits on the board that oversees the $US35 billion endowment.
Lobbyists say the Treasury wants to run the program as much as possible with outside contractors. Career Treasury staff would handle the administrative tasks.
While the department will bypass some government contracting rules, as the legislation allows, it plans to put a formal and transparent process in place to hire the private sector help. The department may also tap the Federal Deposit Insurance Corporation to manage the mortgage portfolio.
"We've been doing a lot of work getting ready for this," Mr Paulson said after the House voted. "Once the legislation is signed, we're going to be going out and lining up advisers from the private sector."
The US President, George Bush, signed the measure soon after Mr Paulson spoke.
The Treasury plans to hire about two dozen employees along with five to 10 asset-management companies. The workers will be a blend of government employees and contractors, with a range of legal, financial and accounting skills.
The companies will be evaluated on the cost and scope of services they offer. The Treasury is still working out a conflict-of-interest policy and details for guidelines on compensation.
Officials cautioned it would take at least four weeks to set up the first of the long-sought asset purchases. These purchases will start slowly with a series of pilot programs.
The Emergency Economic Stabilisation Act of 2008 gives Mr Paulson immediate authority to buy up to $US250 billion in troubled assets from banks and other financial institutions. The White House may expand the program by $US100 billion, and the Treasury can gain access to the remaining $US350 billion with congressional consultation.
The plan allows Treasury officials to "intervene very quickly if they want to," said Vincent Reinhart, of the American Enterprise Institute in Washington and former director of the Federal Reserve Board's division of monetary affairs. He predicts the Treasury will "act in markets first," possibly by working through the Fed.
While the new law gives the Treasury power to inject capital into the banking system, officials say their focus will be to help banks get rid of illiquid assets.
Mr Reinhart said Mr Paulson would take his time setting up asset-buying competitions such as reverse auctions, in which the government would accept the lowest price offered by banks selling a type of asset.
"Auctions are complicated," Mr Reinhart said. "If you're talking about mortgages, there is a very significant information disadvantage to the government relative to the private sector, so they have to be really careful about the way they structure those auctions."
Mr Paulson has an incentive to be deliberate: the next president and his cabinet take office on January 20, and Mr Paulson's reputation depends on his program's long-term track record.
Bloomberg
