U.S. to invest $250 billion in banks

For one thing, the asset-purchase program will take several more weeks if not months to get up and running. In the weeklong struggle to win congressional approval of the original bailout plan, Congress decided to grant the Treasury Department immediate access to only $250 billion. President Bush can authorize spending an additional $100 billion; anything beyond that can be blocked by Congress.

Assistant Treasury Secretary Neel Kashkari, in a speech on the overall rescue strategy, said the legislation approved by Congress at the beginning of the month gave the Treasury broad flexibility -- including the right to take equity positions in banks -- so it could adapt to changing conditions.

"The one constant throughout the credit crisis has been its unpredictability," Kashkari said.

The administration, after some hesitation, has been moving toward the new approach for most of the last week, officials said, in part because direct government recapitalization became the favored approach of European banks, to which the U.S. financial system is tightly linked.

On Wednesday, Britain forced the issue by announcing it would spend $87 billion to take equity stakes in three of its banks. Over the weekend, countries that use the euro followed suit.

Government officials did not name the nine banks that would participate initially, but news reports late Monday included Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co, Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley.

If the new strategy brought cheers from some economists, at least some in the banking industry reacted with alarm as word of what was in the plan seeped out.

One industry insider, who spoke on condition of anonymity because he was not authorized to discuss the plan publicly, said he feared it would set off a firestorm of anger among the hundreds of banks not included in the initial phase of the program, as well as their customers.

"This worked in Sweden, where you have about 14 banks," he said, referring to a successful Swedish intervention in a banking crisis several years ago. "Here we have thousands of banks. The guys at Treasury are thinking as Wall Street people. But they are about to bump into something called democracy. They are going to hear from 5,000 banks, 3,000 credit unions saying, 'You are picking winners and losers.' "