Obama wants to get credit flowing again

(NBC) - Of all the economic remedies being unleashed here at the White House, administration officials said this might be the most important. Buying bad bank debt. It is another huge economic fix floated Monday by President Obama and his Treasury Secretary Tim Geithner.

"We believe that this is one more element that is going to be absolutely critical in getting credit flowing again," said President Obama.

That is the point. College loans have dried up and car loans are too hard to get and home loans are impossible because banks hold a trillion dollars in shaky and defaulted mortgages.

"When banks have these bad assets on their books they're hesitant to lend, private capital is hesitant to come in," said Christina Romer, chair of the council of economic advisers.

The Obama-Geithner plan is for banks to dump their toxic loans at a deep discount. Investors are paying 7 percent, the government 7 percent, government insurance 83 percent.

"The alternative of letting it just sit there, let these assets just sit in the balance sheets of banks would risk creating a much longer and deeper recession," said Geithner.

But Republicans are wary.

"To me, the whole process has been so mishandled and bungled," said Jeff Sessions (R-Alabama).

And the AIG scandal could ruin this plan. Fat cat investors might shy away buying toxic bank loans with government backing, fearing criticism and super taxes if they turn a big profit and get paid big bonuses.

"The more populist, the more angry the American public becomes about all this, Wall Street says 'well, we're not sure we're going to play the game,'" said Robert Reich, former Obama economic adviser and former labor secretary.

But President Obama said his toxic assets plan is a critical element in the recovery.