The U.S. government will initially buy stocks in nine banks

WASHINGTON: President George W. Bush on Tuesday announced a $250-billion plan by the U.S. government to directly buy shares in the nation’s leading banks, saying the drastic steps were “not intended to take over the free market but to preserve it.”

Nine major banks will participate initially including all of the country’s largest institutions. Some of the big banks had to be pressured to participate in the programme by Treasury Secretary Henry Paulson, who wanted healthy institutions that did not necessarily need capital from the government to go first as a way of removing any stigma that might be associated with banks getting bailouts.

Mr. Bush, in brief remarks in the Rose Garden of the White House, said the government would initially buy stocks in nine major U.S. banks.

“These efforts are designed to directly benefit the American people by stabilising the financial system and helping the economy recover,” he said.

Mr. Paulson, at a news conference a short time later, said “today’s actions are what we must do to restore confidence in our financial system.”

“We regret having to take these actions,” said Mr. Paulson. “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.”

Credit clog

The Federal Reserve, meanwhile, announced on Tuesday that it would begin buying massive amounts of short-term debt on October 27 — its latest effort to break through a credit clog. The Fed is invoking Depression-era emergency powers to buy commercial paper — a crucial short-term funding that many companies rely on to pay their workers and buy supplies. Last week the Fed said it intended to take the action but didn’t specify when.

Fed Chairman Ben Bernanke welcomed all the new steps and said he believed they would help ease problems plaguing financial markets and threatening the economy. However, he also made clear that policymakers would continue to take actions as needed to battle the crisis. The nine largest banks are: Citigroup, JPMorgan Chase, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo, Bank of New York Mellon, State Street and Merrill Lynch, soon to be taken over by Bank of America. — Agencies