(Source: McClatchy Washington Bureau)
WASHINGTON _ The Treasury Department confirmed Friday evening that it will buy stakes in major U.S. banks and financial institutions, announcing the bold move as leaders of the world's top industrialized democracies agreed here to guidelines for joint action, but stopped short of taking coordinated steps sought by investors worldwide.
The revelation that Treasury will take nonvoting stakes in U.S. banks adds to a growing list of unprecedented government interventions into private financial institutions.
The list includes the seizure of mortgage-finance companies Fannie Mae and Freddie Mac, the rescue of global insurer American International Group with an $85 billion loan, emergency lending to several financial firms and the direct purchase of short-term promissory notes from U.S. corporations to bypass clogged credit markets.
The announcements came after another turbulent day on world financial markets, and after Treasury Secretary Henry Paulson held an emergency meeting in Washington with the finance ministers and central bank presidents from the Group of Seven, which includes the U.S., Canada, the United Kingdom, Germany, France, Italy and Japan.
In a news conference, Paulson said he explained to the visiting financial leaders how he'll carry out the recently enacted $700 billion U.S. financial rescue package. He revealed that he plans to go beyond purchasing distressed bank assets to take nonvoting stakes in U.S. financial institutions to help recapitalize them.
"We are developing strategies to use the authority to purchase and insure mortgage assets and to purchase equity in financial institutions, as deemed necessary to promote financial market stability," Paulson said. He added that Treasury's working to develop a standardized approach for a wide array of companies to help them attract private capital as well.
In a joint G-7 communique, finance ministers and central bankers said "that the current situation calls for urgent and exceptional action. We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth."
Their five-point guideline plan includes preventing bank failures; ensuring that credit and money markets return to normal functioning; enabling banks to raise capital from public and private sources; ensuring sufficient insurance of bank deposits; and restarting the secondary markets where mortgages and other loans are pooled into bond-like instruments.
"This is a period like none of us have seen before. ... There were not (questions) on what we needed to do," Paulson insisted, dismissing concerns that global investors wanted to see more immediate G-7 steps taken in unison.
