The U.S. government will create an entity called Public Investment Corp. that will draw upon the resources of government agencies and private investors to buy risky loans and other assets which investors have shied away from purchasing, according to a report.
The new entity will combine resources with the Federal Deposit Insurance Corporation, the Federal Reserve and private companies, the Washington Post reported on Sunday.
The new corporation will be funded with $75 billion to $100 billion in funds from the $700 billion government program known as the Troubled Assets Relief Program, or TARP, the report stated.
Several funds created by the company would ultimately buy between $500 billion and $750 billion worth of loans.
Meanwhile the Federal Reserve will expand a $1 trillion program meant to buy consumer debt to include additional types of assets.
Several reports indicate the government will match private investments dollar for dollar, which profits and losses being shared equally.
The Washington Post reports, however, that the government will put far more money into the deals and take on more risk than the investors.
As an example, it notes that a lender wishing to dispose of $10 million worth of residential mortgages and it finally sold for $8 million at auction, the FDIC would provide financing and guarantee losses for as a much as $6 million.
The Treasury would give as much as 80 percent of the rest of the cost of the pool of loans. Investors would give the rest. The private firm would be in charge of managing the portfolio of loans, the report states.