WASHINGTON: The United States plans to buy stakes in a “broad array” of banks, the top official in charge of the country’s $700-billion rescue package said yesterday as he outlined more details.
“We are designing a standardized program to purchase equity in a broad array of financial institutions,” Neel Kashkari, Treasury Secretary Henry Paulson’s pointman on the massive program, told a meeting of bankers in Washington.
“As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions,” he said, according to the prepared text of his speech to the Institute of International Bankers. Kashkari broadly outlined the new offensive to combat the worst global financial crisis since the 1929 market crash, telling bankers that in buying stakes in financial firms, the government would “also encourage firms to raise new private capital to complement public capital.”
Kashkari, 35, is in charge of the Troubled Assets Relief Program (TARP), the $700 billion financial lifeline created through emergency legislation on Oct. 3.
The former Goldman Sachs executive also named new senior recruits charged with running the program drawn from both the private and public sectors, including Tom Bloom, chief financial officer of the Comptroller of the Currency who will be interim CFO.
Under the TARP, the government is authorized to take a wide range of exceptional measures, including the purchase of toxic mortgage-related assets from ailing financial institutions in a bid to unclog frozen credit flows.
The Treasury said it was to hold a meeting with leading bankers and the Federal Reserve later yesterday to discuss a financial market stabilization initiative. Some economists have criticized Paulson for initially proposing buying up the soured assets with the $700 billion, arguing that directly injecting capital into troubled firms would be more effective in unblocking credit, the lifeblood of the economy.
But the revised legislation approved by Congress added provisions that made buying equity possible.
US economist Paul Krugman, a fierce critic of Washington’s handling of the current financial turmoil, welcomed the Treasury’s shift in focus after Britain announced Wednesday a plan to take direct stakes in banks.
“US Treasury officials now say that they plan to do something similar, using the authority they didn’t want but Congress gave them anyway,” said Krugman, who won the Nobel Economics Prize yesterday.