Geithner painted the picture of the latest U.S. recovery attempt in broad strokes, outlining the “key elements” of his proposal:

• Promoting greater transparency and stricter oversight of both established and new financial stability programs.
• Providing capital to institutions in desperate need of a cash infusion.
• Committing up to $1 trillion to support consumer and business lending.
• Addressing the housing crisis and reducing foreclosures.

Geithner was critical of the previous administration’s handling of the crisis, saying previous attempts to support the economy were “not comprehensive or quick enough,” and that “the spectacle of huge amounts of taxpayer assistance provided to the same institutions that helped caused the crisis added to public distrust.”

Hoping to rectify this, the first step of Geithner’s plan calls for stricter oversight of taxpayer funds.

“The American people will be able to see where their tax dollars are going and the return on their government’s investment,” the Treasury Secretary said. “They will be able to see whether the conditions placed on banks are being met and enforced. They will be able to see whether boards of directors are being responsible with the taxpayer dollars and how they are compensating their executives. And they will be able to see how these actions are affecting the overall flow of lending and the cost of borrowing.”

This information will be made available on a new Web site: FinancialStability.gov.

As far as addressing the crux of the current financial crisis, Geithner described three new programs aimed at strengthening the nation’s banks and jumpstart lending.

First, banks that seek financial assistance will undergo a “carefully designed comprehensive stress test” that will determine which institutions are most in need of capital. Those institutions will then be given access to funds from the Treasury, but only if they agree to specific terms named by the government.

In crafting his plan, Geithner reportedly rebuffed calls from some of President Obama’s top advisors to implement more austere restrictions of executive compensation and dictate to banks how to spend the rescue money.

Geithner instead opted for economic incentives to encourage lending, arguing that stark, interventionist measures would be more expensive in the long-run and ultimately undermine the government’s credibility, The New York Times reported.

Geithner also announced the creation of a Public-Private Investment Fund, which will buy up many of the toxic assets that have bogged down banks’ balance sheets. This fund, which has also been referred to as a “bad bank,” will be jointly managed by the Treasury and the U.S. Federal Reserve and bolstered by financing from private investors.

“By providing the financing the private markets cannot now provide, this will help start a market for the real estate related assets that are at the center of this crisis,” Geithner said. “Our objective is to use private capital and private asset managers to help provide a market mechanism for valuing the assets.”

The fund is expected to spend about $500 billion initially, and could easily expand beyond that.

The third and final measure intended to revitalize credit markets involves a vast expansion of the Federal Reserve program for consumer and business loans.

“Working jointly with the Federal Reserve, we are prepared to commit up to $1 trillion to support a Consumer and Business Lending Initiative,” Geithner said. “This initiative will kickstart the secondary lending markets, to bring down borrowing costs, and to help get credit flowing again.”

In the U.S. financial system, 40% of consumer lending has historically been available because people buy loans, according to Geithner.

In addition to these measures, the Fed and the Treasury will commit $50 billion to reduce mortgage payments for homeowners facing foreclosure. A legislative proposal giving bankruptcy judges more authority to modify mortgages on terms more favorable to borrowers will also be renewed.

“As house prices fall, demand for housing will increase, and conditions will ultimately find a new balance,” Geithner said. “But now, we risk an intensifying spiral in which lenders foreclose, pushing house prices lower and reducing the value of household savings, and making it harder for all families to refinance.”

“The President has asked his economic team to come together with a comprehensive plan to address the housing crisis,” the Treasury Secretary added. “We will announce the details of this plan in the next few weeks.”

Source:  Geithner Unveils TARP Overhaul

This morning, it appears the process is well underway.

Of course there’s the news that United Airlines planning to retire 20% of its mainline fleet by the end of next year (up from its original plan of 7%), and slashing routes accordingly. The details are still to be worked out but already it’s been decided that Los Angeles to Hong Kong is history.

But on top of that, USA Today has pored over all the major carriers’ schedules for this coming October, compared them to last October, and found the following:

• Significantly fewer flights to the major vacation/convention destinations — Orlando, Vegas, Honolulu. The tickets have been too cheap for too long to even begin to cover costs
• Fewer flights to big-city airports like Oakland and Chicago-Midway that exist in the shadow of hubs like SFO and O’Hare (and were huge growth stories just a few years ago)
• At least 50 smaller airports will see service levels drop by at least one-third
• 15 of the smallest airports are losing service completely with the shutdown of Air Midwest

The regional jets seating 50 or so passengers are especially cost-inefficient now. That means no more direct flights from Washington-Reagan to Columbus, Ohio; Boston to Norfolk, Virginia; or Cleveland to Chicago-Midway.

Kansas City, where 16 routes were added just last year, will see a 16% year-over-year reduction in service by this fall.

All told, the Air Transport Association says 60 communities that had air service last year have lost it this year, with another 37 to come by year’s end.

Curiously, a couple of the cities mentioned in the article happen to have some of the highest home foreclosure rates in the country. Stockton, California will lose a third of its service by this fall. Merced, California has lost all commercial service already. Coincidence?

And this is with oil in the $125-135 range. What happens at $150 or $200 (which even perma-Pollyanna Daniel Yergin allows as a possibility now)? Silent spring, that’s what.

Update: After bringing the USA Today article to Byron’s attention, he replies:

With six more months of high oil prices, you will not recognize the airline system — not just in the US but across the world.

This will play havoc with the world’s tourism industry, the largest direct or indirect employer of people on the planet.

Hawaii flights down 25%? No driving to Hawaii, eh?

And pity poor Disneyworld and Universal Studios at Orlando… Sorry guys. If I have to walk to get there, I ain’t coming.

And what happens to “ecotourism?” This is the ultimate in not disturbing the environment…. You’ve got the “eco,” but no tourists. So the locals will have to revert to cutting down the rain forest and eating the exotic animals to survive, right?

I especially like this line from the USA Today article….

Kansas City air service manager Justin Meyer says Kansas City is emblematic of changes playing out around the country. He thinks what’s happening at his airport will not be the exception.

“We might be on the leading edge,” he says.

Yep, the leading edge of what????

If the 2-hr flight from Boston to Norfolk is now going to become an 8-hour ordeal, with a transfer through JFK or whatever….

Well, we have a problem.

Should you drive instead? Turn it into a long day of driving, each way…. if you can buy gas along the Interstate.

So a one-day business trip becomes a three-day trip, in the best of circumstances.

Or, if you don’t want to drive, where is the passenger rail system to take up the slack? Whoops. No choo-choo.

Wow, the opportunities for disaster are legion in all of this.

As are the opportunities in companies with proprietary technology that won’t rescue us from Peak Oil, but can make the transition to whatever’s coming next a little easier. Byron has his eye on a company that could one day put oil refineries out of business.

Source: ‘Silent Spring’ Already Setting In