Treasury Secretary Henry M. Paulson Jr. today said the federal government would inject $250 billion into American banks to restore credit flow in the nation’s financial system.
The government, in turn, will receive preferred shares in the banks, which are required to limit pay packages and golden parachutes for executives.
“Government owning a stake in any private U.S. company is objectionable to most Americans,” Paulson acknowledged. “Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”
While the plan is dramatic, it has been implemented more slowly in the U.S. than in European countries such as Britain, Germany and Spain.
“The Europeans not only provided a blueprint, but forced our hand,” Harvard economics professor Kenneth S. Rogoff told The New York Times. “We’re trying to prevent wholesale carnage in the financial system.”
The $250 billion will be drawn from the bailout package approved by Congress earlier this month. About half of the amount will go to the largest banks, several of which have recently acquired failing institutions.
These include:
- Bank of America, which is acquiring Merrill Lynch
- Bank of New York Mellon
- Citigroup
- Goldman Sachs
- JPMorgan Chase
- Morgan Stanley
- State Street
- Wells Fargo, which is acquiring the Wachovia Corporation
Stocks, led by the banking sector, rallied after Paulson’s announcement this morning.
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