Is Paulson Going Bank Shopping?
Treasury Secretary Henry Paulson, with much prodding from Democratic Sen. Charles Schumer, is thinking about using some of that $700 billion to buy ownership stakes in shaky banks. The scheme would ostensibly give taxpayers a share in the fortunes of the bailed-out institutions.
Treasury Secretary Henry Paulson, with much prodding from Democratic Sen. Charles Schumer, is thinking about using some of that $700 billion to buy ownership stakes in shaky banks. The scheme would ostensibly give taxpayers a share in the fortunes of the bailed-out institutions.
The prospect of pumping taxpayer money into unstable banks is hard to swallow, but then so is the current plan to buy up all the junk securities that none of these institutions can sell to anyone else.
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An administration official, who spoke on condition of anonymity because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and get ownership shares in return.
This official said all the new powers granted in the legislation were being considered as the administration seeks to deal with a serious credit crisis that has caused the biggest upheavals on Wall Street in seven decades and continues to roil global markets.
Supporters of this approach, such as Sen. Charles Schumer, D-N.Y., argue that injecting fresh capital into U.S. banks who want to participate in the program would be an effective way to bolster banks’ balance sheets and get them to resume lending. Taxpayers would benefit because the government would receive an equity stake in the bank in return for providing the capital.
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