Treasury To Start Releasing Rescue Funds

Gov't To Buy Stock In Nine Major Banks To Start Credit Flowing Again

(AP)  The U.S. government will start doling out $125 billion to nine major banks this week to get credit flowing again, but Monday's announcement offered cold comfort to investors as rising anxiety about a worldwide recession drove stocks down sharply around the globe.

Assistant Treasury Secretary David Nason said the deals with the nine banks were signed Sunday, and the government will make the stock purchases this week. The deals are designed to bolster the banks' balance sheets so they will begin more normal lending.

The action will mark the first deployment of resources from the government's $700 billion financial rescue package passed by Congress on Oct. 3.

The bailout package has undergone a major change in emphasis since it was passed by Congress. Treasury Secretary Henry Paulson decided to use $250 billion of the $700 billion to make direct purchases of bank stock, partially nationalizing the country's banking system, as a way to get money into the financial system more quickly.

The plan is also aimed at clearing banks' balance sheets of bad assets. That effort has yet to begin although the administration expects to use $100 billion to purchase bad assets in coming months.

The deployment of the first $125 billion to the major banks had been delayed while the government and the banks worked out the details for the purchases. Nason, a key architect of the rescue plan, said in an interview Monday on CNBC television that those agreements had been signed late Sunday night.

Treasury is also starting to give approval to major regional banks with the goal of getting another $125 billion in stock purchases made by the end of this year.

KeyCorp, said Monday it would issue stock for a $2.5 billion infusion of capital from the government. SunTrust Banks Inc. also said it has received preliminary approval from Treasury for a $3.5 billion investment. In all, about 15 regional banks have received preliminary approvals for the government to make stock purchases.

Treasury said it was allowing each bank to announce its own deal once preliminary agreements were reached. Treasury will announce the final deals on its Web site each day once all the paperwork is completed and signed. By law, Treasury must announce the agreements within 48 hours after they are signed.

Treasury has given the go-ahead for stronger banks to use the money it receives in the rescue program to acquire weaker banks. That has prompted criticism the government should not be financing the consolidation of the banking system - in effect helping to choose winners and losers.

As fears mounted of a prolonged and deep worldwide recession, a juggernaut of selling swept across world markets Monday, stripping billions of dollars of wealth from people across the globe.

Major stock markets in Hong Kong, Tokyo, Britain, France and Germany slid, dragging down smaller bourses in emerging markets such as South Korea and the Phillipines. Tokyo's Nikkei 225 index closed at its lowest since October 1982.

But stocks rebounded on Wall Street. The Dow Jones industrial average started the day down nearly 90 points in the first few minutes of trading, but then stabilized, bolstered in part by a better-than-expected reading on new home sales and the Treasury announcement that the stock purchase program will begin this week. In early afternoon trading, the Dow Jones industrial average was up 70 points.

The Federal Reserve will begin a two-day meeting Tuesday and many economists expect it to cut interest rates - perhaps to their lowest point in more than four years - with the hope of relieving some of the economic pain felt by many Americans.

The Fed also began a major new initiative Monday to unclog frozen credit markets by purchasing commercial paper, the short-term loans that businesses use to fund their daily operations.

The market for commercial paper dried up after the bankruptcy of Lehman Brothers Holdings Inc. last month and other troubles in the global banking system. The biggest buyers of commercial paper are money market funds, some of which took big hits when Lehman collapsed.

The convergence of a housing collapse and a lockup in bank lending has created the worst financial crisis in more than a half-century.

With a recession seen as inevitable in the U.S., if not already under way, any Fed rate cut would be aimed at cushioning the fallout in the world's largest economy.

Vanishing jobs and shrinking paychecks have forced U.S. consumers to cut back sharply. Millions of ordinary Americans have watched their 401(k)s and other nest eggs shrink and the value of their homes drop, making them feel in even worse financial shape. In turn, businesses have cut back on hiring and other investments as customers hunker down and credit problems make it harder and more costly to get financing.

Not even China's mighty economy was immune to the rising recession anxiety. Its benchmark index slumped to its lowest level in more than two years as investors reacted to dismal earnings reports.

Currency markets were unnerved by a statement from seven leading industrial nations Sunday warning of the "recent excessive volatility" in the value of the Japanese currency, which is rising against the U.S. dollar toward the 90 yen level and near 13-year highs.

Dealers had one wary eye on central banks, watching whether they would intervene in currency markets to sell yen and prop up other currencies. The yen's rise threatens Japan's export-heavy economy by making its goods relatively more expensive.

Shares of top Japanese exporters Toyota Motor Corp. and Sony Corp. were hit hard Monday. The losses came despite a report that the government was considering a massive capital injection into struggling banks in a bid to calm jittery financial markets.

Investors fled to the safety of some types of government debt Monday. The price of gold - another traditional safe have in times of panic - rose.

Investors around the world seemed largely unimpressed by government efforts to help lift market sentiment. South Korea's central bank cut its key interest rate Monday by three-quarters of a percentage point, its largest-ever reduction. The country's stock market benchmark Kospi ended with a 0.8 percent gain.

Elsewhere, central banks in Australia and Hong Kong added funds to their markets to boost liquidity.

Hey I have a question: Why is everyone accusing Obama as espousing socialist ideas? Didn''t we just redistribute over a trillion of our tax dollars to Wall Street? It''s my understanding that, over the last 8 years, our national debt has almost doubled. Isn''t all of this recent government intervention in the marketplace a direct socialist policy? What more do you think Obama could do?

[airboatboy1]

So the banks that get the money can buy up weaker banks. Great! Maybe the process will continue until there''s one big federal bank! Seems like a plan to me!

[jsf14]

So we are giving them money and they can do whatever they want with it? Is there anything to make them pay more attention to the gov''t as stockholder than they did to their other stockholders? I don''t see anything to force them to loosen up any kind of credit.

[floydzeppt]

Republicans begin process to Nationalize the Financial System ushering in the Era of Republican Socialism.

[tired0fthebs]

Ha! HA! HA! Ha! HA! You poor republicans, Sarah Palin has sold her skins for some TV time.

www.chilitoz.com is reporting that Sarah Palin has signed a deal with PlayBoy Magazine to posed partially exposed in a future release of the famous nudity magazine in exchange, Heffner will run a multi-million dollar anti Obama add a day before the election.

[hennighg]

Yes, the poor, poor rich people need help again. For us down here: no health care, $4 gasoline (well, it will be back shortly after the election), 200% more expensive heating than 5 years ago, no bankruptcy because we aren''t rich enough, student loans harder to get, children harder to get because they''re sent to Iraq to die for. . .oil? Al Qaeda? Iraqi fredom? Whatever., high priced food, high priced rent (because we got no house), and so on and on. But we are ''rescuing'' the rich. That IS rich.

[gop_will_win]

This credit thing, I''''m sorry, I don''''t think and it hasn''''t been argued that it''''s worth $125 billion of taxpayer money, there shouldn''''t be credit for credit''''s sake should there?


--------------------------------------------------------------------------------

Posted by eddom949
====================
Blame the liberals. They live on credit.

[gop_will_win]

I hope there are no strings attached to the bailout money so the CEO''s can buy single malt scotch and expensive hookers.

[eddom949]

This credit thing, I''m sorry, I don''t think and it hasn''t been argued that it''s worth $125 billion of taxpayer money, there shouldn''t be credit for credit''s sake should there?