new bank plan, page-2

Paulson reveals bank rescue plan
From correspondents in New York
Agence France-Presse
October 11, 2008 04:02pm

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.

Mr Paulson's comments underline how the Treasury is increasingly in favour of investing directly in struggling banks which are unable to raise new capital from private investors.

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.

Under a G7 "action plan" announced today, the economic powers would seek to ensure that banks "can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses."

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.

"This financial crisis has shaken the global economy. Congress cannot wait until a new administration arrives in January to examine what went wrong and who should be held accountable," said the chairman of the Committee on Oversight and Government Reform, Henry Waxman.

Presidential and congressional elections are planned for November 4, with the new regime set to take over in January.