Treasury plans to purchase stakes
U.S. recession projected, possibility of worldwide recession, according to economists
Kevin G. Hall
Issue date: 10/13/08 Section: Money/Health
WASHINGTON (MCT) - The Treasury Department confirmed Friday evening that it will buy stakes in major U.S. banks and financial institutions, announcing the bold move as leaders of the world's leading industrialized democracies agreed to guidelines for joint action but stopped short of taking coordinated steps sought by investors worldwide.
The revelation that Treasury will take nonvoting stakes in U.S. banks adds to a growing list of unprecedented government interventions into private financial institutions not seen since the Great Depression.
The list includes the seizure of mortgage-finance companies Fannie Mae and Freddie Mac, the rescue of global insurer American International Group with an $85 billion loan, emergency lending to several financial firms, and the direct purchase of short-term promissory notes from U.S. corporations to bypass clogged credit markets.
The announcements came after another turbulent day in world financial markets, and after Treasury Secretary Henry Paulson held an emergency meeting in Washington with the finance ministers and central bank presidents from the Group of Seven, which includes the U.S., Canada, the United Kingdom, Germany, France, Italy and Japan.
In a news conference, Paulson said he told the visiting financial leaders how he'll carry out the recently enacted $700 billion U.S. financial rescue package. He revealed that he plans to go beyond purchasing distressed bank assets to take nonvoting stakes in U.S. financial institutions to help recapitalize them.
"We are developing strategies to use the authority to purchase and insure mortgage assets and to purchase equity in financial institutions, as deemed necessary to promote financial market stability," Paulson said. He added that Treasury is working to develop a standardized approach for a wide array of companies to help them attract private capital as well.
In a joint communiqué, G-7 finance ministers and central bankers said "that the current situation calls for urgent and exceptional action. We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth."
The revelation that Treasury will take nonvoting stakes in U.S. banks adds to a growing list of unprecedented government interventions into private financial institutions not seen since the Great Depression.
The list includes the seizure of mortgage-finance companies Fannie Mae and Freddie Mac, the rescue of global insurer American International Group with an $85 billion loan, emergency lending to several financial firms, and the direct purchase of short-term promissory notes from U.S. corporations to bypass clogged credit markets.
The announcements came after another turbulent day in world financial markets, and after Treasury Secretary Henry Paulson held an emergency meeting in Washington with the finance ministers and central bank presidents from the Group of Seven, which includes the U.S., Canada, the United Kingdom, Germany, France, Italy and Japan.
In a news conference, Paulson said he told the visiting financial leaders how he'll carry out the recently enacted $700 billion U.S. financial rescue package. He revealed that he plans to go beyond purchasing distressed bank assets to take nonvoting stakes in U.S. financial institutions to help recapitalize them.
"We are developing strategies to use the authority to purchase and insure mortgage assets and to purchase equity in financial institutions, as deemed necessary to promote financial market stability," Paulson said. He added that Treasury is working to develop a standardized approach for a wide array of companies to help them attract private capital as well.
In a joint communiqué, G-7 finance ministers and central bankers said "that the current situation calls for urgent and exceptional action. We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth."
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