"The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investment provided by the Treasury," he said.

US President Barack Obama also hailed the latest plan, saying he was "very confident" that it will work. "We believe this is one more element that is going to be absolutely critical in getting credit flowing again," Obama spoke briefly to reporters after meeting his economic advisors at the White House.

"It's not going to happen overnight, there is still great fragility in the financial systems but we think that we are moving in the right direction," said the president.

Greeted with skepticism

Geithner also acknowledged the uncertainties inherent in the new program, but defended it on Monday as a practical approach.

"There is no doubt the government is taking risk," Geithner said at a press conference. "You cannot solve a financial crisis without the government assuming risk."

Treasury officials are betting that the current low market prices for these assets are driven more by excessive fear than the reality of how the economy will perform, and that the new purchases will help kick-start those markets and return them to more normal functioning, according to US media.

"It is going to be an open bid. That's part of why we're going in with the private sector," said Christina Romer, head of the White House Council of Economic Advisors. "They're going to have money on the line just like we are and the whole idea is to make sure we don't overpay for them."

Two of the largest US money managers, BlackRock and PIMCO, also expressed interest in participating in the plan.

"This is perhaps the first win/win/win policy to be put on the table and it should be welcomed enthusiastically. We intend to participate and do our part to serve clients as well as promote economic recovery," Bill Gross, PIMCO's co-chief investment officer told reporters.

"We are very supportive," said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable. "We think it is a useful tool in the arsenal against liquidity problems."

US stocks staged the strongest rally this year on Monday, a sign that Wall Street was optimistic about the new program. All major indexes jumped more than 6 percent, as big banks such as Citigroup, JPMorgan and Bank of America climbed over 20 percent.

However, one particularly treacherous hurdle for the plan is how to persuade the private investors to come to the table.

"After last week's high-volume debate over bonus payments to AIG employees, hedge funds and private equity firms may be reluctant to play ball, for fear that the government will change terms of the deal retroactively," said the Washington Post in a report.

Some lawmakers also expressed skepticism about the new plan. House Republican Whip Eric Cantor called it a "shell game" that hid the true cost.

"As described, the plan seems to offer little incentive for private investors to participate unless the subsidy is made so rich that it comes at the expense of the taxpayer," Cantor said in a statement.

Nobel economics laureate Paul Krugman slammed that the plan was based on "financial policy despair."

"The Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt," Krugman wrote in the New York Times.

"So this isn't really about letting markets work. It's just an indirect, disguised way to subsidize purchases of bad assets," he added.

(Xinhua News Agency March 24, 2009)