Bush to announce details of expanded bank bailout / LJWorld.com

Archive for Tuesday, October 14, 2008

By Martin Crutsinger - Associated Press Writer

October 14, 2008

Washington — The Bush administration plans to spend an initial $250 billion of the $700 billion bailout buying stock in private banks, greatly expanding protections for the U.S. financial system out of deep concern for the faltering economy, industry and government officials said Monday night. President Bush planned to announce the details this morning.

Agreement on the plan came after a remarkable Treasury Department meeting between top government economic officials and executives of the nation's largest banks to revamp the most costly financial rescue in the nation's history.

The plan also would provide a way for the government to insure loans that banks make to each other, a critical part of the credit system that has become frozen and put many businesses in peril.

Earlier Monday, stocks soared around the world in response to dramatic government economic relief efforts in the U.S. and overseas - and the possibility of the even bolder American action.

Monday night, the Treasury Department said the administration had decided on "comprehensive actions" to bolster public confidence in the nation's financial system. Bush was to be briefed early today by economic advisers and then announce the plan, which Treasury said was designed to "restore functioning of our credit markets."

While the administration refused to provide details in advance, industry and government officials with knowledge of the plan said it would include billions of dollars in spending by the government to purchase stock in banks as a way of providing them desperately needed money so they could resume more normal lending. The industry and government officials spoke on condition of anonymity because the details were yet to be formally released.

The administration will use $250 billion of the bailout program recently passed by Congress to buy into U.S. banks, the officials said. The government initially will purchase stock of nine large banks, but the program is expected to be expanded to many others. Among the initial banks participating will be all of the country's largest institutions, including Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co, Bank of America Corp. and Morgan Stanley, said one official, who added that administration briefers did not provide any amounts that would be received by individual banks.

The administration expects to spend the $250 billion buying bank stock before the end of this year, this official said. Bush will certify today that another $100 billion is needed from the $700 billion rescue program. That would leave the final $350 billion to be spent.

In addition to the stock purchases, the Federal Deposit Insurance Corp. will temporarily provide insurance for loans between banks, charging the banks a premium for doing so.

This FDIC program would take the form of providing insurance for new "senior preferred" debt that one bank would lend to another. This debt would be insured by the FDIC for three years.