The Obama administration Tuesday morning unveiled a new financial bailout package that could top 1.5 trillion dollars to restore the U.S. ailing financial system.

Treasury Secretary Timothy Geithner said the comprehensive Financial Stability Plan will bring the full force of the federal government together in partnership with the private sector to stabilize the financial system and open up the flow of credit.

He said banks would go through ‘a carefully designed comprehensive stress test’ to ensure their balance sheets are clean and they meet requirements for capital.

‘Without credit, economies cannot grow at their potential,’ he warned. ‘Right now, critical parts of our financial system are damaged. The credit markets that are essential for small businesses and consumers are not working,’

He noted that trade among nations is contracting sharply as finance dries up. Home prices are still falling as foreclosures rise, and even credit-worthy borrowers are finding it harder to finance the purchase of a new home or to refinance their existing mortgage.

‘Instead of catalyzing recovery, the financial system is working against recovery. At the same time, the recession is putting greater pressure on banks. This is a dangerous dynamic, and we need to arrest it,’ said the Treasury chief.

‘Without a powerful economic recovery act, too many Americans will lose their jobs and too many businesses will fail,’ he warned, vowing to take forceful actions to restore the financial market and revive the economy.

U.S. Treasury Secretary Timothy Geithner speaks at a press conference in Washington, the United States, on Feb. 10, 2009. The Obama administration Tuesday unveiled a new financial bailout package to restore the U.S. ailing financial system.

‘And unless we restore the flow of credit, the recession will be deeper and longer, causing even more damage to families and businesses across the country,’ he said.

Meanwhile, the Federal Reserve said it is prepared to expand a key program to one trillion dollars to get the frozen credit markets functioning again.

‘The expansion could increase the size of the Term Asset-Backed Securities Loan Facility (TALF) to as much as 1 trillion dollars and could broaden the eligible collateral to encompass other types of newly issued AAA-rated asset-backed securities,’ said a statement released by the U.S. central bank.

Those AAA-rated securities include commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities, it said.

But investors appeared to reject the government’s latest plan. The Dow Jones industrial average plunged more than 300 points minutes after Geithner’s announcement.