U.S. to buy shares in struggling banks

Paulson had initially dismissed the idea of taking equity stakes in crippled banks, and his change of heart may reflect a growing conviction that the severity of the credit crisis warrants a more direct approach. The Treasury plan aims to help banks rapidly shore up their dwindling capital so that they are more willing to lend to businesses, individuals and one another.

The announcement followed Wall Street's most tumultuous week ever, including a volatile session Friday that saw the Dow Jones industrial average whipsaw over a range of 1,000 points. The Dow fell for an eighth straight day and posted the biggest weekly loss in its 112-year history.

"We're in this together and we'll come through this together," a somber President Bush said in a Rose Garden statement. He warned that "anxiety can feed on anxiety" -- echoing President Franklin D. Roosevelt's Depression-era declaration that "the only thing we have to fear is fear itself."

Paulson said the Treasury Department was working on a plan to buy equity in "a broad array of financial institutions," using some of the $700 billion in the financial rescue package approved by Congress last week.

The equity would be in the form of nonvoting shares, a move that might temper the government's ability to meddle with management.

Paulson made the announcement after emerging from a meeting of finance ministers and central bankers of the world's leading industrial democracies. After the meeting, the so-called Group of 7 issued a five-point plan, promising "urgent and exceptional action" to address the crisis.

Although the finance ministers pledged to work cooperatively on the same goals, they did not commit to a specific plan. That poses the possibility that disappointment over the limited scope of the communique will drive stock markets lower again on Monday.

Many economists and investment professionals had been hoping that the G-7 meeting would produce a concrete, coordinated international plan to address the spreading global credit crunch. Paulson dismissed that suggestion.