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Paulson reveals bank rescue plan | |||
2008-10-11 | |||
US Treasury Secretary Henry Paulson says the US government is planning to invest directly in US banks to prevent them from failing, expanding the focus of the government's $US700 billion ($1 trillion) rescue plan. "We're going to do it as soon as we can do it and do it effectively," Mr Paulson said when asked about an equity-buying plan. "There's no doubt in our mind, given the magnitude of the issue ... that we can use the taxpayers' money more effectively and efficiently ... if we develop a standardised program for making, encouraging equity participation," he added. A $US700 billion rescue plan approved last week had initially focused on the problem of liquidity for banks by offering to buy up their toxic assets.
Implementing the rescue plan, called the Troubled Asset Relief Program (TARP), is taking time because of the complexity of the problems, but Mr Paulson said officials were "working around the clock to deal with this." Mr Paulson has warned that the first purchases of toxic assets could take several weeks and he gave no timetable for the equity purchase program. "I'm not prepared to say today about the relative sizes of the two efforts," he said when asked about the amount of money that would be spent on buying assets relative to the amount for equity.
Earlier this week, the White House said such a plan to directly recapitalise troubled banks was "actively" being considered as part of the rescue package. Mr Paulson said today that efforts to fight the financial crisis would be in cooperation with the G7 and said any government stock purchase would be in non-voting shares. "As we develop plans to purchase equity, as in the approach we are taking to broad mortgage asset purchases, we are working to develop a standardised program that is open to a broad array of financial institutions," Mr Paulson said. "Such a program would be designed to encourage the raising of new private capital to complement public capital. Consistent with the legislation, any equity the government purchases through a broadly available equity program would be on a non-voting basis." Such a move would follow similar action by British authorities, and would give the government special shares of the banks in exchange for helping boost badly needed capital in an effort to unclog credit markets. Analysts and officials said there is a precedent in the Reconstruction Finance Corporation created during the Great Depression. A US Congress committee also announced today that it will expand its probe into the causes of the financial crisis next week by calling on leading investment managers to testify, a leading Congressman announced today. George Soros, a veteran financier famous for his speculation against the British pound on "Black Wednesday" in 1992, is among a host of leading names to be called.
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Posted by:tipper |
#5 Putting equity in the banks? That amounts to turning them into GSEs. That worked real well for Fannie and Freddie, didn't it? Just wait until the congresscritters get their fingers into B of A or Citi. We are all doomed. |
Posted by: Skunky Glins 5*** 2008-10-11 21:45 |
#4 So basically Paulson is following the Swedish precedent: During 1991–1992, a housing bubble in Sweden deflated, resulting in a severe credit crunch and widespread bank insolvency. The causes were similar to those of the subprime mortgage crisis of 2007–2008. In response, the government took the following actions: Sweden's government assumed bad bank debts, but banks had to write down losses and issue an ownership interest (common stock) to the government. Shareholders were typically wiped out, but bondholders were protected. When distressed assets were later sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies in public offerings. The government announced the state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral. This bailout initially cost about 4% of Sweden's GDP, later lowered to between 0–2% of GDP depending on various assumptions due to the value of stock later sold when the nationalized banks were privatized. (en.wikipedia.org/wiki/Bailout#Swedish_banking_rescue) |
Posted by: L1011 2008-10-11 16:05 |
#3 Paulson Plan 1. Give billions of taxpayer money to undeserving companies. 2. ? 3. Dow 15,000!!111!! |
Posted by: Scott R 2008-10-11 10:58 |
#2 A US Congress committee also announced today that it will expand its probe into the causes of the financial crisis next week by calling on leading investment managers to testify, a leading Congressman announced today. In other news... mysterious force shatters Congressional cloakroom mirrors. |
Posted by: Besoeker 2008-10-11 09:49 |
#1 SSRA? |
Posted by: g(r)omgoru 2008-10-11 07:38 |