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Can someone explain this? Fed buying stock?
http://news.yahoo.com/s/ap/20081010/ap_on_bi_ge/meltdown_paulson;_ylt=Ap0p5kMCkHO4vPVPGgSaY4Nv24cA
I was OK with this concept until I read that the government will be buying stock in financial institutions and that the purchases would be in addition to the $700B "rescue plan"? WTH is thta $700B for? I am so confused!
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Treasury Secretary Henry Paulson said Friday that the Bush administration will move ahead with a plan to buy stock in financial institutions.
Paulson said the program to purchase stock in financial institutions will be open to a broad array of institutions.
The administration received the authority to make direct purchases of stock in banks in the $700 billion measure Congress passed last week to rescue the nation's financial system.
It would mark the first time the government has taken equity ownership in banks in this manner since a similar program was employed during the Great Depression.
Paulson announced the administration was moving forward with the program during a news conference at the conclusion of discussions among finance officials of the Group of Seven major industrialized countries. That group endorsed the outlines of a sweeping program to combat the worst global credit crisis in decades.
"As we develop plans to purchase equity ... we are working to develop a standardized program that is open to a broad array of financial institutions," Paulson said in a statement.
Paulson said the government's program would be designed to complement the efforts of banks to raise fresh capital from private sources. He said that the government's stock purchases would be of nonvoting shares so that the government will not have power to run the companies.
The purchase of equity stakes in companies would be in addition to the main thrust of the $700 billion rescue effort, which involves purchasing distressed assets off the books of financial institutions as a way of unthawing frozen credit markets and getting banks to resume more normal lending operations.
Paulson told reporters the administration was moving "swiftly and thoughtfully" to implement the new rescue package.
The administration is expected to start making announcements next week of the private sector asset management firms that will be selected to help run the program.
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