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U.S. Is Investing $250 Billion in Banks: Bush Addresses Financial Crisis

October 14, 2008
WASHINGTON — President Bush, speaking from the Rose Garden Tuesday before the markets opened in New York, called the government plan to invest up to $250 billion in banks essential to help assure stability in the nation’s financial system.

Under the proposal that is similar to those initiated by European governments on Monday, President Bush said the Treasury Department would invest up to $250 billion in banks, receiving an equity stake in return.

“This is an essential short-term measure to ensure the viability of the American banking system,” Mr. Bush said.

The United States would also guarantee new debt issued by banks for three years — a measure meant to encourage the banks to resume lending to one another and to customers, officials said.

The Federal Deposit Insurance Corporation would also offer an unlimited guarantee on bank deposits in accounts that do not bear interest — typically those of businesses — bringing the United States in line with several European countries, which have adopted such blanket guarantees.

In addition, Mr. Bush said the Federal Reserve would start a program to become the buyer of last resort for commercial paper, a move intended to help businesses get the money they need for day-to-day operations.

Mr. Bush’s comments were the latest in series by administration officials and government leaders around the world to try to calm the financial turmoil and help stave off a deep recession. And markets around the world have rebounded on news of the coordinated efforts by various governments. The Dow Jones industrial average gained 936 points, or 11 percent, the largest single-day gain in the American stock market since the 1930s and future indexes were substantially higher. European markets were up at least 5 percent on Tuesday after rising nearing 10 percent Monday.

The president described the four measures as “unprecedented and aggressive.” Each of the new programs protects taxpayers and is “limited and temporary,” Mr. Bush said.

“These measures are not intended to take over the free market,” he said, but to safeguard it.

It will take time for our efforts to have their full impact,” Mr. Bush said, “but the American people can have confidence about our long-term economic future.

As the White House has done since the House rejected the initial bailout legislation, Mr. Bush sought to assure Americans that the efforts were necessary to protect their savings and retirement.

“I recognize that the action leaders are taking here in Washington and in European capitals can seem distant from those concerns,” he said. “But these efforts are designed to directly benefit the American people by stabilizing our overall financial system and helping our economy recover.”

Treasury Secretary Henry M. Paulson Jr. outlined the plan to nine of the nation’s leading bankers at a meeting Monday afternoon d. He essentially told the participants that they would have to accept government investment for the good of the American financial system, according to officials.

Of the $250 billion, which will come from the $700 billion bailout approved by Congress, half is to be injected into nine big banks, including Citigroup, Bank of America, Wells Fargo, Goldman Sachs and JPMorgan Chase, officials said. The other half is to go to smaller banks and thrifts. The investments will be structured so that the government can benefit from a rebound in the banks’ fortunes.

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