U.S. Considers Taking Ownership Of Banks

(CBS/AP)  The Bush administration is considering taking ownership stakes in certain U.S. banks as an option for dealing with a severe global credit crisis.

An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.

This official said all the new powers granted in the legislation were being considered as the administration seeks to deal with a serious credit crisis that has caused the biggest upheavals on Wall Street in seven decades and continues to roil global markets.

The news helped give Wall Street a boost of confidence. In the first half-hour of trading, the Dow Jones industrial average rose 145.93, or 1.55 percent, to 9,402.03.

Supporters of this approach, such as Sen. Charles Schumer, D-N.Y., argue that injecting fresh capital into U.S. banks who want to participate in the program would be an effective way to bolster banks' balance sheets and get them to resume lending. Taxpayers would benefit because the government would receive an equity stake in the bank in return for providing the capital.

"This idea would, at a minimum, complement the administration's planned approach of buying up troubled assets and may prove to be the most promising tool of all in Secretary Paulson's kit," Schumer said in a statement.

A decision to inject capital directly into financial institutions in return for ownership stakes would be similar to a plan announced Wednesday by Britain.

Treasury Secretary Henry Paulson told reporters that Treasury was moving quickly to implement the $700 billion rescue effort and he specifically mentioned reviewing ways to bolster the capital of banks.

"We will use all the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size," Paulson said at a Wednesday news conference.

Asked whether he would try something like the British plan, Paulson said: "We have a broad range of authorities and tools. ... We've emphasized the purchase of liquid assets, but we have a broad range of authorities. And I'm confident we have the authorities we need to work with going forward."

The administration so far has stressed its major goal is to purchase bad loans from financial institutions.

Paulson said that while the financial market turmoil has hurt the economy, the administration is moving quickly to begin the largest financial system rescue effort in history.

Even with the program to buy bad assets from financial institutions, he said, some banks will fail. He also called for patience, saying "the turmoil will not end quickly and significant challenges remain ahead."

Asked Thursday on his thoughts about the government's possible takeover of some banks, billionaire Steve Forbes told CBS' The Early Show he agrees that the situation calls for drastic measures.

When you have an emergency, Forbes said, "you do whatever it takes."

In an attempt to help stop the financial crisis from causing a global economic recession, the Federal Reserve and other central banks cut interest rates in a rare coordinated move Wednesday.

Paulson called the coordinated rate cuts "a welcome sign that central banks around the world are prepared to take the necessary steps to support the global economy during this difficult time."

The emergency reate cuts seemed to at least calm the nerves of some global investors Thursday. Asian markets were far steadier, some even posting slight gains by closing time, and Europe's biggest markets were also trading up a couple percentage points before midday. (Read more on World Markets.)

Paulson on Monday selected Neel Kashkari, 35, an assistant Treasury secretary, to be the interim head of the new program. In his remarks Wednesday, Paulson said the administration would move quickly to nominate someone to fill the job permanently.

Paulson said he was consulting with President George W. Bush, congressional leaders and presidential candidates Barack Obama and John McCain before choosing someone to fill the job permanently. The post requires Senate confirmation, something Paulson predicted could occur in November.

The administration has been rushing to implement the program, which cleared Congress last Friday. Paulson said it would be several weeks before the program makes its first purchases of troubled assets.

"U.S. and global financial markets continue to be severely strained," Paulson said at the briefing called to preview the upcoming weekend meetings of finance officials of the Group of Seven major industrial countries, the 185-nation International Monetary Fund and the World Bank. The global credit crisis was expected to be the major agenda item at those talks.

[wardoglrs]

And the American people still don''t get it. There own government since the days of Andrew Jackson who threw out the money changers in his day and pushed there agenda back 70 yrs has given America time to act if you don''t act they will simply win. Keep your money give them nothing this is a economic warfare and the enemy is your own world leaders

[wh1teth0rn]

A government bailout for banks and others who have become stricken by their own poor practices will encourage future bad management behaviour and financial crises. Neither our politicans here in the UK nor your own in America must let the culpable off the hook.

[karateman39]

just great. one more step towards socialism. If the Clinton administration had not pressured freddie mac and fannie may into giving high risk loans so everyone could own a house we mightnot be in this mess.

Note I say might. this isn''t all Clinton''s fault, some of it lies on Bush''s head. We cannot pin thison one person but it started during the Clinton admin.

Other to blame are people who bought more house than they coulds aford, or even had a right to. not everyone can own a house and not everyone should own a house.

I own a house and live within my means. Jow I have to support idiots who think they deseve everything, buy on credit, never pay it back, and made bad financial descisions. The foreclosed will get NO pitty from me.

[lila356]

niceface: It''s called fascism and it''s been happening since 2000 when Busheney stole the election. This is when we began to slowly lose our constitutional rights with the Patriot(not patriotic!) Act. Unfortunately it has already happened and we just haven''t seen the effects yet.

[wardoglrs]

Just Remember that both McCain & Obama opproved the bail out. Try third party and show the Dem''s & Repubs who is incharge. Baldwin is the best choice now

[vancouverboo]

Great. Back to the honor system for mortgages. Houses for everyone. No foreclosures allowed. Everything''s fine until the Chinese foreclose on the government.

[brianbwb-2009]

"$700B Package Allows Treasury Department To Receive Stake In Failed Banks, Official Says"

Which means nothing if all the same management that stole us into this problem are still guiding the company, witness AIG partying it up for a half million of our money, one week after we "bailed them out".

The only way it will work is if the whole lot of crooked money managers are shown the door out of the firm, and for those whose actions merit, into a prison cell.

Then the banks should be used to distribute this printed money not to the wealthy, but to the middle and lower classes for work done rebuilding the country. Business should be forced to compete for the money, as was the original intent of capitalism.

[choiceshaveconsequences]

Say it aint so, Moe. George W. Bush has finally achieved his goal of unifying the world''s leaders. The new "coalition of the billing" is resolved to solve the meltdown of world financing he and his power hungry cronies created for all of us. The Banks of England, Canada, Japan, the European Central Bank, Sweden''s Riksbank, Swiss National Bank, Reserve Bank of Australia, Hong Kong Monetary Authority, China''s Central Bank and others have joined the U.S. Federal Reserve Bank in a show of unity the likes of which "we have never had before," says Dean "junkbonds" Junkans, CIO of Wells Fargo.
Bush''s s(pl)urge pushed us beyond the $53 trillion debt plateau, where, if we want to visit our money, we''ll have to relocate to Baghdad.
Let the argument begin: Either we should not have gotton invoved in this massive fiscal sleight of hand, or if we hadn''t become involved, we''d never know how effective this s(pl)urge could be.
Now McCain has another "strategical" surge (splurge) for the taxpayer. He wants to refinance mortgages solely at the taxppayers'' expense, with a free ride for his buddy financiers. You will have to decide whether Sarah is waving the white flag of surrender or just a crying towel. What will it take to stop this hemorrhaging? Was he brainwashed to hate us this much when he was a prisoner?

[lawyertom1]

Dah. Why buy the guano when you can get a piece of the pie?

[iphyt4u]

The government refuses to mass produce drugs for high blood pressure, diabetes, and host of other common afflictions, but their willing to invest in banks and mortgage companies. George and McSame are keeping their buddies rich.