US set for âbig bangâ financial clean-up ByKrishna Guha in Washington Financial Times Published: January 30 2009 23:31 | Last updated: January 31 2009 00:19 The Obama administration is gearing up for a âbig bangâ announcement next week that will combine a bank clean-up with measures to reduce home foreclosures and probably steps to kick-start credit markets. The plan will involve an overhaul of the troubled asset relief programme â the $700bn bail-out fund â including strict curbs on compensation at banks receiving public aid. The Tarp overhaul is intended to restore public confidence in what is a deeply unpopular programme and ensure that taxpayer money is not used to fund excessive pay, bonuses and dividends to shareholders. âThere will definitely be a cap of some sort on bonuses,â said a Wall Street executive who has taken part in talks with the authorities. âThe political climate is such that there is a need to punish Wall Street.â The announcement will follow Fridayâs news that the US economy contracted at an annualised rate of 3.8 per cent in last yearâs final quarter â less than analysts were expecting, but still the worst quarter since 1982. The fall was cushioned by ballooning inventories, which suggest the economy could shrink faster than expected in the first quarter. The âbig bangâ approach reflects the belief of Tim Geithner, Treasury secretary, and Lawrence Summers, National Economic Council director, that the Bush administration was wrong to dribble out policy initiatives. Mr Geithner intends to present a âcomprehensiveâ plan that policymakers hope will command market confidence. Details of the financial overhaul are being finalised and have yet to be approved by President Barack Obama, but it may include both the purchase of toxic assets by a âbad bankâ and insurance-style guarantees for problem assets remaining on bank balance sheets. Anti-foreclosure efforts are likely to focus on subsidising programmes that reduce unsustainable monthly mortgage payments, though there may also be support for schemes that subsidise the partial writedown of loans that exceed the value of the home. Treasury may also unveil new efforts to revitalise dysfunctional securitisation markets.