U.S. to buy shares in banks
Treasury secretary says the move, previously rejected, is now needed to inject cash into the financial system.
Treasury Secretary Henry M. Paulson said today that the Bush administration would buy stakes in banks and other financial institutions to help ease the economic crisis.
Paulson said the Treasury Department was working on a plan to use some of the $700 billion in the financial rescue package to purchase equity in "a broad array of financial institutions." The equity would be in the form of nonvoting shares, with the goal of the plan being to help those institutions raise new private capital.
As Congress worked on the bailout legislation last month, Paulson had dismissed the idea of equity purchases. Today, he said the administration had decided that such a move was needed now, in concert with the purchase of mortgage-backed securities, to help inject cash into the banking system.
"There's no doubt in our mind, given the magnitude of the challenge, that we can use the taxpayers' money more effectively and efficiently, have it go further, get more for their dollars and more protection if we develop a standardized program" for purchasing equity in financial institutions, Paulson said.
He offered few details, declining to say how much of the $700 billion would go to such equity purchases. Paulson said officials were "working around the clock" to develop the program.
Paulson made the announcement after a meeting of finance ministers and central bankers from the world's leading industrial democracies. The so-called G7 issued a five-point plan of action, promising "urgent and exceptional action" to address the crisis.
"This is a period like none of us has ever seen before," Paulson said. "What came out of the meeting is there weren't differences in what we need to do"
But while the finance ministers pledged to work cooperatively on the same goals, they did not commit to a specific plan. Paulson dismissed the suggestion that the markets would react negatively to a lack of a coordinated battle plan.
"I think that some in the press and some in the markets are naive if they think that different countries with different financial systems, economies in different stages of development . . . and different political systems, different laws, are going to come up with precisely the same policy to deal with the issues," he said.
jim.puzzanghera
@latimes.com
