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Banks Could Be Part of Bailout

Published 10/09/08 Dustin Ensinger - Print Article
E-mail - editor@economyincisis.org

Treasury Secretary Henry Paulson said on Wednesday that, as part of the $700 billion bailout package passed last week, he would direct that money to ailing banks and may allow the government to take a stake in those banks.

The bill was originally designed to allow the government to buy up toxic mortgage related assets, however, Paulson said that the legislation gives him the authority to inject capital into the banking system if that is what it takes to unfreeze the credit markets.

"I'm not going to speculate on all the things we may have to do," he said. "I would simply say we have a broad range of authorities and tools...to work with going forward here."

Paulson, though, was noncommittal on whether or not the federal government would seek to take equity stakes in the banks in return for an infusion of capital.

If he chooses to do so, it is likely that he will find support on Capitol Hill. Congress is feeling the heat from its constituents for passing the $700 billion bailout plan and is looking for anyway possible for taxpayers to recoup that money.

"We can buy these preferred shares and if a company becomes more profitable, you (taxpayers) will get a share of that as well," said chairman of the House Financial Services Committee, Rep. Barney Frank (D-MA)

Thus far, the bailout package has proven to be unsuccessful. Financial markets are still in distress and the slowdown is spreading worldwide. On Tuesday, the Fed and other central banks announced coordinated interest rate cuts with the hopes of spurring lending.

Source Reuters:

Treasury Secretary Henry Paulson said on Wednesday a recently approved financial bailout bill gives him wide authority to inject capital into the banking system and would not rule out having Treasury take an ownership position in banks if necessary.

"We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size," he told a news conference ahead of a Friday meeting of Group of Seven finance ministers.

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