AP
US moves to get $700B bank rescue effort started
Monday October 13, 8:49 am ET
By Martin Crutsinger, AP Economics Writer
Administration announces moves to get $700 billion financial system rescue
program running
WASHINGTON (AP) -- The Bush administration said Monday it is moving quickly to
implement a $700 billion rescue program, including consulting with private law
firms on how to buy ownership shares in banks to help thaw frozen lending and
get the economy moving again.
The announcement came as Europe's central banks began to take unified actions
Monday aimed at easing the credit crisis.
The coordinated efforts by European and U.S. authorities to prop up the banking
system brought a measure of relief to markets. European markets opened strongly
Monday following Asia's lead in response to the widespread government
initiatives.
U.S. stock markets also appeared headed for a higher opening after eight
sessions of devastating losses.
The administration on Monday announced the selection of a team of interim
managers, picked an outside firm to help run the program and tapped Federal
Reserve Chairman Ben Bernanke to head up the oversight board guarding against
conflicts of interest.
Neel Kashkari, the assistant Treasury secretary who is interim head of the
program, said officials were developing the guidelines that will govern the
purchase of bad assets and had consulted with six specialist law firms on how
the government will take partial ownership of banks.
After those consultations, Kashkari said Treasury had chosen Simpson Thatcher &
Bartlett LLP to move forward to help the government structure the stock
purchase program.
"We are moving quickly -- but methodically -- and I am confident we are
building the foundation for a strong, decisive and effective program," Kashkari
said in a speech Monday to the Institute of International Bankers.
Kashkari, however, provided few details about how the program will actually buy
bad assets and ownership shares in banks. He focused mainly on the nuts and
bolts of getting the program running.
He said five veteran government officials had been chosen as interim heads of
key components of the program including Tom Bloom, currently the chief
financial officer at the Office of the Comptroller of the Currency, to serve as
the chief financial officer for the rescue program.
Kashkari said seven policy teams at Treasury had been created to focus on the
different aspects of the program including buying bad assets such as
mortgage-backed securities. Another team would work on buying residential
mortgages, which he said were currently clogging the books of regional banks,
and another would focus on the program to buy equity stakes in private banks as
a way to boost their capital.
Kashkari announced that investment consultancy Ennis Knupp & Associates had
been chosen as the private firm that will help Treasury review proposals from
asset management companies. He said that 70 companies had made bids to become
the master custodian firm and that a final selection of the winning firm would
be announced by Tuesday.
He said more than 100 companies had submitted bids to become one of the five to
10 firms that will operate the program to buy and manage the bad assets from
financial firms.
Kashkari's speech Monday marked his first public appearance since being
selected a week ago to run the program.
His comments came as The Bank of England, the European Central Bank and the
Swiss National Bank jointly announced they would work together to provide
unlimited short-term funds to make money available to ease the credit freeze.
The Bank of Japan said it was considering a similar move.
"The government cannot just leave people on their own to be buffeted about,"
said British Prime Minister Gordon Brown.
To assist the European banks, the Fed said it was taking actions to assure
enough U.S. dollar funds were available to meet demand.
The British central bank was making available $63 billion to the three largest
British banks to bolster their balance sheets.
The government move will leave British taxpayers owning as much 47 percent of
the Royal Bank of Scotland Group PLC, and 43 percent of Lloyds TSB Group PLC
and HBOS PLC, two British banks in the process of merging. A third bank,
Barclays PLC said it would not seek government help as it boosts its capital by
$11.4 billion.
"The hope is that today will mark a watershed, with vast measures of government
reassurance finally rekindling some confidence in the shattered banking
sector," said Keith Bowman, an analysts at Hargreaves Landsdown Stockbrokers in
London.
Treasury Secretary Henry Paulson said during weekend meetings with global
financial powers that his department was working around the clock to carry out
the plan. His comments were meant to convince investors that the world's
largest economy is moving quickly to get lending restarted and avert what could
be a deep and painful global recession.
Those dire concerns sent markets around the world reeling last week, giving the
Dow Jones industrial average it worst week on record. Since peaking a year ago,
the Dow is now down 40.3 percent. U.S. stocks have lost $8.4 trillion in value
over the past year.
Throughout the weekend, the administration worked to restore confidence, using
the annual meetings of the 185-nation International Monetary Fund and World
Bank to send a message that global finance officials will do what it takes to
resolve the crisis.
The Group of Seven major industrial countries issued a five-point action plan
that pledged to do everything from preventing major banks from failing to
unfreezing credit markets.
President Bush met with G-7 finance officials at the White House on Saturday
morning and later traveled to the IMF to meet with the Group of 20, which
includes rich countries as well as major developing nations such as China,
Brazil, India and Mexico. He stressed the need for cooperation.
In Paris, the 15 nations in Europe's single-currency zone agreed Sunday to
steps including temporarily guaranteeing bank refinancings.
The Bush administration over the past six weeks has taken over the nation's two
biggest mortgage finance firms, Fannie Mae and Freddie Mac, rescued American
International Group, the world's biggest insurance company, and won
congressional approval of a $700 billion rescue package for the entire
financial system.
As the bailout bill rushed through Congress, Paulson stressed that the major
aim was to buy bad assets, primarily mortgage-backed securities, from financial
institutions. The hope was that taking those bad loans off the books would
encourage banks to return to more normal lending operations and unclog credit
flows -- the economy's lifeblood.
Paulson said Friday that the government also would use some of the money to buy
stakes in banks. The goal is to give banks the resources to resume lending at
more normal levels.
That about-face has left the administration trying to decide how much to devote
to buying bad assets and how much to use for stock purchases.
Lawmakers who pushed to include the stock purchase program in the rescue bill
over initial administration objections say the stock purchases can start much
faster than the effort to buy bad assets and help restore market confidence
sooner.
AP reporter Emily Flynn Vencat in London contributed to this story.
http://biz.yahoo.com/ap/081013/financial_meltdown.html
A creaking door hangs long on its hinges
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