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U.S. to buy into top banks - Oct. 14, 2008U.S. pulls the trigger
Government to pump billions into banks, expand deposit and loan guarantees.
NEW YORK (CNNMoney.com) -- The federal government on Tuesday announced an extraordinary and historic direct investment in the nation's banks - the biggest bet ever made with taxpayer dollars on the U.S. financial system.
As a start, the Treasury will pump $250 billion into financial institutions. Nine of the nation's largest banks have already agreed to take the capital and in return will give preferred shares to taxpayers and accept limits on executive pay. Half of the money, or $125 billion, will go to the nine large banks.
The Associated Press: Bailout becomes buy-in as feds move into bankingBailout becomes buy-in as feds move into banking
By JEANNINE AVERSA – 3 hours ago
WASHINGTON (AP) — Big banks started falling in line Tuesday behind a rejiggered bailout plan that will have the government forking over as much as $250 billion in exchange for partial ownership — putting the world's bastion of capitalism and free markets squarely in the banking business…..
…. Initially the U.S. government will pour $125 billion into nine major banks with the hope that they will use the money to rebuild their reserves and to increase lending to consumers and businesses. Another $125 billion will be made available this year to other banks — if they need it — for cash infusions.
In return, the government will get ownership stakes in the financial institutions. Banks, meanwhile, will have to accept limitations on executives' compensation.
"Government owning a stake in any private U.S. company is objectionable to most Americans — me included," Treasury Secretary Henry Paulson said in announcing the initiative. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable."
Whether the $250 billion will be sufficient to encourage banks to lend again is hard to tell, said Anil Kashyap, professor of economics and finance at the University of Chicago's Graduate School of Business. The Treasury Department arrived at the $250 billion figure after consulting with banking regulators…..
…. The move, in effect a partial nationalization of the banking system, does put the United States in the awkward position of owning shares in institutions it also regulates. The shares purchased by the government will be nonvoting. They also give the government a priority in getting paid back if a company fails…