US to buy stake in banks
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WASHINGTON: The US government will buy an ownership stake in a broad array of American banks for the first time since the Great Depression, Treasury Secretary Henry Paulson said late Friday.
Separately, the U.S. and the globe’’s other industrial powers pledged to take “decisive action and use all available tools” to prevent a worldwide economic catastrophe. “This is a period like none of us has ever seen before,” declared Paulson at a rare Friday night news conference.
He said the government program to purchase stock in private U.S. financial firms will be open to a broad array of institutions, including banks, in an effort to help them raise desperately needed money.
The administration received the authority to take such direct action in the $700 billion economic rescue bill that Congress passed and President Bush signed last week.
Paulson announced the administration’’s new effort to prop up banks at the conclusion of discussions among finance officials of the Group of Seven major industrialized countries. That group endorsed the outlines of a sweeping program to combat the worst global credit crisis in decades.
He said the government’’s stock purchases will be of nonvoting shares so it will not have power to run the companies.
The purchase of stakes in companies would be in addition to the main thrust of the $700 billion rescue effort, which is to buy bad mortgages and other distressed assets from financial institutions. The aim is to unthaw frozen credit, get banks to resume more normal lending operations and stave off severe problems for businesses and everyday Americans alike.
“We”ve seen that problems in the financial system are not isolated to the United States,” he said. “So we”re working closely with partners around the world to ensure that our actions are coordinated and effective.”
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