The U.S. Treasury announced Monday morning it will spend up to $1.0 trillion in a bid to provide support to the balance sheets of financial institutions and support the toxic debt market, which includes mostly mortgage-backed securities.

The U.S. Treasury will invest between $75 billion to $100 billion from its existing Troubled Asset Relief Program, and it plans to set up a separate initiative which will use the Federal Reserve's Term Assets Backed Securities Lending Facility and FDIC funding to finance the highly anticipated Private Public Investment Program (PPIP).

Five different private public funds will bid on toxic assets and sell them to the broader public.

Meanwhile, the Federal Deposit Insurance Corporation will guarantee private-sector loans for these purchases, while the U.S. Government will invest side by side with private equity using taxpayer capital.

In a press conference following the official announcement, Geithner said he expects significant interest from the private sector, a sentiment which was confirmed by PIMCO's Bill Gross following the announcement.

Geithner also said the Treasury's plan would not require new legislation, and he pointed out that executive compensation limitations will not apply to passive private investors taking advantage of the program's financing.

Geithner said that while there is no doubt that the U.S. government is taking risk with the PPIP, the taxpayer stands to make substantial returns on the investments. He also said that the Treasury should be able to implement the PPIP quickly.

By Erik Kevin Franco, efranco@economicnews.ca, edited by Ernest Hoffman, ehoffman@economicnews.ca