Geithner is expected to announce the creation of a new government entity, called the Public Investment Corporation, which will oversee the bailout. This agency will be backed by $100 billion not yet allocated from the $700 billion Troubled Asset Relief Program (TARP) that was proposed by the Bush administration and authorized by the Democratic-controlled Congress last October.

The first prong of the three-part plan involves the Federal Deposit Insurance Corporation (FDIC), the agency created in the 1930s to insure the savings of ordinary bank depositors. The FDIC will establish partnerships with hedge funds and other private investment firms to buy whole home loans—as distinct from loans packaged into mortgage-backed securities–from banks that agree to sell them. (In this, as in the other parts of the plan, the participation of banks and investment firms is entirely voluntary).

The other two prongs of the administration plan are directed at the banks’ money-losing securities backed by mortgages and other forms of consumer and commercial debt. One will expand a Federal Reserve program, the Term Asset-Backed Securities Loan Facility (TALF), which was launched last week to extend low-cost loans and guarantees against losses to hedge funds and private equity firms that purchase new securities backed by auto loans, credit card debt, commercial mortgages and small business loans.

TALF will be enlarged to include the purchase of previously existing asset-backed securities, including those backed by residential mortgages. In addition, the Fed will be required to offer longer-term loans to private investors than under the original TALF plan, possibly as long as seven years. This is designed to provide sufficient time for markets to recover so that the investors can reap big profits before their loans come due.

Finally, the government will establish a so-called “public-private partnership,” in which the Treasury Department hires a number of investment management firms to buy mortgage-backed and other securities from the banks. The Treasury will match, dollar-for-dollar, money from private investors who participate and will also loan funds to increase the investment funds’ purchasing power.

All this is to free up money so that loans can be made and revivie the economy…..but if no one is working or buying or building….then who will be asking for the loans?