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    U.S. government to spend $250 billion to buy shares in ailing banks

    HotNewsTurkey with wires
    14.10.2008 - 09:59 | Son Güncelleme: 14.10.2008 - 16:37

    The U.S. government will spend up to $250 billion to buy shares in struggling banks in the latest effort to stem a global financial crisis, Treasury Secretary Henry Paulson said Tuesday. (UPDATED)

    Nine large banks agreed to the government equity stakes in exchange for new capital, Paulson said. 

    The government also will temporarily guarantee unsecured debt and interbank lending and offer unlimited deposit insurance for many accounts as part of a global effort to stem a credit crunch.

    The efforts are part of a $700 billion emergency rescue package approved last month by Congress in the face of a widening global crisis.

    The moves come following a weekend pledge by the Group of Seven economic powers to use all available tools to keep financial markets functions and save key financial institutions.

    "Today we are taking decisive actions to protect the U.S. economy," Paulson said.

    "We regret having to take these actions. Today's actions are not what we ever wanted to do -- but today's actions are what we must do to restore confidence to our financial system."

    Paulson added: "Government owning a stake in any private U.S. company is objectionable to most Americans -- me included.

    "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable. When financing isn't available, consumers and businesses shrink their spending, which leads to businesses cutting jobs and even closing up shop."

    ACTIONS TO CONTINUE
    Federal Reserve Chairman Ben Bernanke promised continued action to stabilize financial markets.

    "We will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy," he said in a statement.

    The Treasury will buy stakes in Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of New York Mellon Corp, Reuters reported citing sources.

    Media reports said State Street Corp and Merrill Lynch would also receive a capital injection.

    BUSH: GOV'T TO INJECT CAPITAL
    U.S. President George W. Bush also said on Tuesday the U.S. government will directly inject capital into financial institutions by buying equity stakes in a bid to help thaw credit markets frozen by the housing market collapse.

    "This is an essential short-term measure to ensure the viability of America's banking system," he said after meeting with his top economic advisers, adding that the new capital would encourage banks lending again, which would spur job creation and economic growth.

    "The program is carefully designed to encourage banks to buy these shares back from the government when the markets stabilize and they can raise capital from private investors," Bush said.

    He insisted the government's steps would be "limited and temporary" and not designed to take over the free market.

     

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