In somber remarks in the Treasury Department's ornate Cash Room, Mr. Paulson said the government's latest moves were necessary given the deep financial crisis.
While he had been reluctant to take such steps, his actions Tuesday, coupled with the administration's moves over the past six months, have injected the government more deeply into the financial sector than at any time since the 1930s. Mr. Paulson and other regulators said the steps were temporary. But, historically, it's often hard to undo new rules in Washington after businesses, consumers and policy makers adjust to changes.
At the core of Tuesday's announcement is a plan to buy $250 billion worth of preferred stock in banks, a step the government sees as crucial to getting banks to make new loans and to lure private capital from the sidelines.
While the program is voluntary, Treasury essentially forced the nine major U.S. banks to agree to take $125 billion from the federal government. Treasury will buy $25 billion in preferred stock from Bank of America -- including Merrill Lynch -- as well as J.P. Morgan and Citigroup; between $20 billion and $25 billion from Wells Fargo & Co.; $10 billion from Goldman Sachs Group Inc. and Morgan Stanley; $3 billion from Bank of New York Mellon; and about $2 billion from State Street. The remainder will be available to small- and medium-size institutions that apply for an investment.
The money will come from the $700 billion that Congress recently approved for Treasury to buy bad loans and other troubled assets from financial institutions. Treasury still intends to proceed with that program within the next few weeks.
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