Treasury weighs investing in wider array of firms

| Washington Post

11/6/2008 -

WASHINGTON — The federal government is preparing to take tens of billions dollars in ownership stakes in an array of companies outside the banking sector, dramatically widening the scope of the Treasury Department's rescue effort beyond the $250 billion set aside for traditional financial firms, government and industry officials said.

Treasury officials are finalizing the new program, which could ultimately involve hundreds of billions of the $700 billion rescue package, though the initiative is unlikely to be announced until the end of next week at the earliest.

Since the announcement of the program to inject capital into banks, a number of industries, including automakers, insurers and specialty lenders for small businesses have approached the Treasury with hat in hand. Some have been turned away because they are not banks and thus not eligible for capital.

The new initiative would make it easier for the Treasury to aid a wider variety of firms if their troubles put the wider financial system at risk, government and industry officials said. These companies would still have to be financial firms that fall under federal regulators.

Several companies, including GMAC, an auto financing company, and CapitalSource, a commercial lender in Bethesda, Md., are seeking ways to restructure themselves as banks or thrifts, which entails submitting to much tighter federal regulation. If other firms follow suit, the trend would vastly expand government oversight into a variety of industries.

The Treasury is also making progress on an initiative that would provide relief to homeowners at risk of foreclosure. Several proposals are on the table, including one crafted by Sheila Bair, chairman of the Federal Deposit Insurance Corp., who wants to spend about $40 billion to modify the mortgages for as many as 3 million homeowners. But several government and industry sources close to the matter said Treasury officials view Bair's plan as flawed and are seeking ways to revise it.

Designing these new programs is difficult because the Treasury will have to hand off the $700 billion rescue package, approved by Congress last month, to the new administration before officials have finished mapping out how to use the money.