By Glenn Somerville
WASHINGTON (Reuters) - The Treasury rolled out a reworked financial rescue plan on Tuesday worth possibly more than $2 trillion to mop up bad bank assets and revive consumer lending in a bid to stave off a deep recession.
But investors said they were disappointed that Treasury Secretary Timothy Geithner did not provide vital details of how his plan will work.
Geithner said his plan was needed because there was no public confidence in previous efforts, by the Bush administration, to prop up faltering banks.
"This is a challenge more complex than any our financial system has ever faced, requiring new programs and persistent attention to solve," he said when presenting the plan.
Investors were frustrated. "It's not big enough. There are few details," said Joseph LaVorgna, chief U.S. economist for Deutsche Bank Securities in New York.
Stock prices fell sharply and U.S. government bond prices -- a safe-haven for investors -- rose.
The Dow Jones industrial average fell 293.34 points, or 3.55 percent, to 7,977.53, shortly after the announcement.
The dollar also fell.
Geithner said his plan could sop up as much as $1 trillion of bad assets from burdened banks and enable another $1 trillion of consumer lending.
Shortly after Geithner announced the plan, the Senate cleared an $838 billion economic stimulus plan which is another part of President Barack Obama's push to tackle the economic crisis.
Geithner faced tough questioning on CNBC television about the reaction of the financial markets to his plan and he stressed the Obama administration came into office facing huge economic difficulties that would take time to solve.
"This is an enormously complicated financial crisis we're facing," Geithner said. "It's going to take a lot of time to resolve, it's going to be hard to do, but we're going to keep at it until we fix it."
A centerpiece of the renamed "Financial Stability Plan" is a proposal to set up a public-private investment fund, in partnership with the Federal Deposit Insurance Corp, a bank watchdog, and the Federal Reserve, the U.S. central bank.
Seeded with public money, it would leverage up to $500 billion -- possibly as much as $1 trillion -- so that toxic assets can be purged from a weakened banking system.
Geithner told an invited audience at the Treasury that $50 billion in federal rescue funds will be used to try to stem home foreclosures and soften the crushing impact of the deep housing crisis now afflicting the entire economy.
The program includes an expansion of the Fed's Term Asset-backed Securities Loan Facility (TALF), which is aimed at expanding lending for credit cards, student and auto loans.
The lending facility is to expand from its current $200-billion limit, thanks to a jump in Treasury funding to $100 billion from $20 billion, which will provide a platform to enable up to $1 trillion of new consumer lending.
The Fed lending facility will also be able to include commercial mortgage-backed securities as well as mortgage-backed securities packaged by private financial institutions.
The Treasury is tussling with the worst problems in decades, stemming from careless lending that helped fuel a housing crisis that has now dragged the U.S. economy and much of the rest of the world into deep recession.
Geithner warned it will take time to resolve the crisis but his proposals to do so failed to reassure market participants.
"Investors want clarity, simplicity, and resolution. This plan is seen as convoluted, obfuscating, and clouded," said James Ellman, President of Seacliff Capital in San Francisco.
Geithner acknowledged deep skepticism has developed over the fairness and efficiency of a $700-billion bank bailout program approved by Congress in October. About half of that money has been committed, including $250 billion in the form of direct capital injections for troubled banks.
He said leaders of some financial institutions that have received money had squandered the good faith that is needed to make the bank rescue effective.
"The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust," Geithner said.
President Barack Obama said on Monday that cleaning up banks' balance sheets was a priority and didn't rule out the possibility that it will take more money than the $700 billion Congress already has approved to complete the job.
"We don't know yet whether we're going to need additional money or how much additional money we'll need until we see how successful we are at restoring a level of confidence in the marketplace," Obama told a news conference.
(Additional reporting by David Lawder and Mark Felsenthal; Editing by James Dalgleish)
