Bush announces new details of rescue plan

October 14, 2008 6:07:12 AM PDT
President Bush on Tuesday announced a $250 billion plan by the 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." Bush, in the latest of a series of statements on the troubled economy, said in a brief Rose Garden statement that the move echoed similar bold moves made overseas in an effort to prevent a global recession. "These efforts are designed to directly benefit the American people by stabilizing the financial system and helping the economy recover," he said.

The president made his statement after an early morning meeting with his economic advisers, announcing these steps:

-The federal government will use part of the $700 billion bailout law to inject money into banks "by purchasing equity shares."

Bush said this will help banks continue to make loans to businesses and individuals.

-The Federal Deposit Insurance Corporation will "temporarily guarantee" most new debt issued by insured banks.

-The FDIC also will expand government insurance to cover all non-interest bearing accounts, aiding small businesses in covering their day to day operations.

-The Federal Reserve will "soon finalize work" on a new program to serve as a buyer of last resort for commercial paper.

Bush said that by restoring confidence in the system, the hope is to "return our economy back to the road of growth and prosperity."

He said that the partial nationalization of the nation's battered financial sector was a short-term move to help banks to be able to begin lending again.

"Government's role will be limited and temporary," the president pledged.

It was the latest in a series of moves by the government in an effort to combat a global credit crisis that is threatening to push the country into a deep recession.

Executives of the country's biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday to be briefed on the plan. Treasury Secretary Henry Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.

The administration plans to spend $250 billion of the $700 billion government rescue program passed by Congress on Oct. 3 to make stock purchases this year. The first purchases will be in nine large banks, officials said.

Paulson was expected to outline details of the plan at a Treasury Department news conference.

"Over the past few weeks, my administration has worked with both parties in Congress to pass a financial rescue plan. Federal agencies have moved decisively to shore up struggling institutions and stabilize our markets," Bush said. "And the United States has worked with partners around the world to coordinate our actions to get our economies back on track."

He called the decision for the government to buy stock in the distressed banks "an essential short-term measure to ensure the viability of America's banking system."

It does put the United States in the awkward position of owning shares in institutions it also regulates. The shares purchased by the government are expected to be nonvoting ones.

"This new capital will help healthy banks continue making loans to businesses and consumers. And this new capital will help struggling banks fill the hole created by losses during the financial crisis, so they can resume lending and help spur job creation and economic growth," Bush said.

"I know Americans are deeply concerned about the stress in our financial markets, and the impact it is having on their retirement accounts, and 401(k)s, and college savings and other investment," Bush said.

He added: "I recognize that the action leaders are taking here in Washington and in European capitals can seem distant from those concerns."

"It'll take time for our efforts to have their full impact," the president said. "But the American people can have confidence about our long-term economic future. We have a strategy that is broad, that is flexible, and that is aimed at the root cause of our problem."


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