Paulson: U.S. Will Invest in Banks

UPDATED at 7:35 p.m.

In remarks to the media just concluded, Treasury Secretary Hank Paulson said the federal government will use the authority it has been granted by the $700 billion Wall Street bailout/rescue law to buy actual stakes in U.S. banks, in addition to merely buying troubled assets off their books.

The move is notable because it will give the federal government and, by extension, U.S. taxpayers, an actual ownership position in banks, effectively nationalizing them to a degree.

Under the original bailout/rescue plan, taxpayers would be only temporary owners of the troubled assets, which will be sold back into the private sector. And, indeed, the newly announced ownership stake may be temporary, as well.

"We can use taxpayer money more effectively, more efficiently, it will go farther, they will get more for their dollars and more protection if we develop a standardized program" for buying equity stakes, Paulson said.

Paulson was asked if Treasury will spend more money buying the troubled assets or buying equity stakes.

"I'm not willing to say anything today relative to the size of the two efforts," he said.

Paulson would not commit to government backing of interbank lending -- probably the biggest thing gumming up the credit flow is the fact that banks aren't loaning money to each other because they don't trust that they'll get it back.

But the secretary acknowledged that the credit market -- measured by spreads -- is still frozen, despite the coordinated rate cut announced by several countries earlier this week.

"I look at the same spreads you do," he said. "I see the same things you do. There's more to do in the liquidity area."

But Paulson added: "Remember: the program announced by the Fed has not been implemented yet."

Paulson said the G-7 statement issued following the meeting is less rambling than past statements. "We said, 'Let's have something that's different, that's to the point and that's powerful.' "

When asked how quickly the various rescue plans can be implemented, Paulson said: "Trust me, we are not wasting time. People are working 'round the clock to deal with this."

Here is Paulson's statement.

-- Frank Ahrens.

October 10, 2008; 7:32 PM ET | Category: business

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