WASHINGTON — Despite evidence that banks are regaining their health, the Treasury Department is pressing forward with a highly controversial program to help finance purchases of toxic assets that were at the heart of the nation's plunge into economic chaos last year.
Treasury officials say the program is still needed because the assets -- complex securities on the balance sheets of banks that have virtually no market to trade in because they are so difficult to value -- still pose a threat.
"The outcry from those in need of loans is substantial," said Lee Sachs, special advisor to Treasury Secretary Timothy F. Geithner. "We need to keep taking steps to help regenerate credit creation in this country.
But some outside critics say the government has moved so slowly to address the toxic assets that the problem is largely fixing itself and that the program's design from the very beginning was so complex that it was bound to fail.
Indeed, President Obama said in a televised interview Tuesday that banks have recovered much more quickly than he expected. Investment bank giant Goldman Sachs & Co. posted a stunning $3.4-billion second-quarter profit Tuesday, and share prices of many banks have jumped in the last week.
The program to buy the toxic assets was unveiled by the Obama administration in March, describing it as a program of as much as $1 trillion to sop up mortgage-backed securities that were hobbling the banking system.
It was one of the administration's biggest and riskiest efforts to bolster the financial sector at a time when securities markets were plunging. Since then, the outlook has brightened and the program has been sharply pared back to no more than $40 billion.
The program has since fallen about one month behind schedule and now may not be ready to start actual trading for at least another month, if not until fall.
Nine investment management firms were selected last week to partner with the Treasury Department, drawing $10 billion of direct investment from the government to match $10 billion they would raise from investors. The fundraising period will continue through early August. The firms could then obtain low-interest federal loans to leverage the funds up to a total of $40 billion.
Once organized, they would offer to buy the toxic securities from banks at less than full face value, but in theory, for more than the banks were being offered before.
