Even with $700 billion at his direction, the Treasury Secretary mould target banks and toxic possessions selectively to have maximum, immediate impact

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Treasury Secretary Paulson talks to the media Monday, Sept. 29, after the House voted facing a $700 billion bailout. The House, capping a of great consequence week, voted for the placard Friday, Oct. 3. Saul Loeb/AFP/Getty Images

by Jane Sasseen

With the House of Representatives’ Oct. 3 passage of the Treasury’s $700 billion plan to stabilize the financial markets by buying up troubled mortgage-related assets, you could almost hear the sigh of relief spreading throughout Washington and Wall Street. After two weeks of nearly nonstop negotiations in which the bill repeatedly appeared to flounder, it was quickly passed on to President George W. Bush, who signed it into expressed command within hours.

Now comes the hard part: acquirement the Mother of All Buyout Funds up and running.

Treasury officials have made clear they want to confer that as soon as possible, and be seized of told congressional leaders and Wall Street executives that they demise conduct the first cant to buy assets within four weeks. The work needed to accomplish that is conveniently under way, by a team of Treasury officials led by Ed Forst, a Goldman Sachs (GS) alumnus who left the firm this summer to become a senior administrator at Harvard University. In late September, Paulson asked him to tend hitherward to Treasury to work onward the bailout program. Forst, who is on a for a time contract, began to outline the plans for implementation even as Congress wrangled over the particulars. With the deal now done, Treasury hopes to lease five to 10 asset managers to oversee the purchases, each of whom will manage up to $50 billion in assets. It also hopes to hire another couple of dozen bankers, lawyers, and accountants needed to run the program, with a great quantity of the hiring expected within the month.

"Treasury is acutely aware that it fust shape an at the opening of day register of success in conduct to contend market and political confidence," says Howard Glaser, a high-ranking housing official in the Clinton Administration and former chief lobbyist for the Mortgage Bankers Association who now runs the Glaser Group consulting firm. "Paulson did not desire to lose precious days waiting for Congress to way the conclusive bill before putting together the implementation invent."

Already, Paulson’s priorities are becoming clear. It will have to decide which assets to proceed after before anything else, and who to buy them from. Congress has given Treasury wide discretion to decide what assets to target. Although greatest number of the funding is likely to go nearly buying up mortgage-backed securities and whole family circle loans still held on the books of the lenders who originated them, Treasury have power to in addition purchase up construction loans, home equity loans, or even credit-card debt or car loans if it decides that is necessary.

Treasury also has plenty of room to determine which types of institutions to buy from. Though banks, investing. banks, and insurers are high on the list, the purchases could in addition be extended to hedge funds and others if need be.

Sources closely following the plans say that Paulson is intently focused on making unfailing Treasury gets the biggest bang for its billions. "It can’t do anything too exotic fair off the bat," says Tom Gallagher, the head of Washington address research for institutional broker ISI Group. "It needs to have a quick impact."

So the first order of business will exist ensuring that the first letter auctions it holds to buy up assets are a big success—indeed, some say Treasury wants to attend that they are oversubscribed. Those will be "reverse" auctions, in which sellers compete by the agency of submitting prices they would be willing to accept, generally allowing the buyer to select the lowest. So preferably than Treasury injunction a certain footing up to buy up a bundle of mortgage-backed securities, for the sake of example, the agency would tell financial institutions that it wanted to buy up a particular type of mortgage-related debt. Then it would buy those securities from whichever seller offered them for the lowest price.