U.S. President George Bush announced a $250-billion government plan Tuesday to directly buy shares in leading U.S. banks, saying the drastic step was "not intended to take over the free market but to preserve it."
In brief remarks at the White House, Bush said the government will initially buy stocks in nine major U.S. banks.
"These efforts are designed to directly benefit the American people by stabilizing the financial system and helping the economy recover," he said.
U.S. Treasury Secretary Henry Paulson, at a news conference a short time later, said "today's actions are what we must do to restore confidence in our financial system."
"We regret having to take these actions," said Paulson. "Today's actions are not what we ever wanted to do -- but today's actions are what we must do to restore confidence to our financial system."
Financial analyst and editor of The Gartman Letter, Dennis Gartman told 麻豆影视net the move is still just a bandage solution.
"I think it's a very good bandage, I think it's one that's very necessary. I'm absolutely glad that it has been undertaken, but the damage that has been done, the problems that are still (present) in the mortgage business ... the fact that we are going into and already are in a recession ... those processes take some time to get through."
Bush said the move mirrored similar steps taken overseas and would benefit Americans.
Speaking after an early morning meeting with his economic advisers, he announced the following steps:
- The U.S. government will use part of the $700-billion bailout law to inject money into banks "by purchasing equity shares."
- The Federal Deposit Insurance Corporation will "temporarily guarantee" most new debt issued by insured banks.
- The FDIC also will expand government insurance to cover all non-interest bearing accounts, aiding small businesses in covering their day-to-day operations.
- The Federal Reserve will "soon finalize work" on a new program to serve as a buyer of last resort for commercial paper.
Bush said that by restoring confidence in the system, the hope is to "return our economy back to the road of growth and prosperity."
He said that the partial nationalization of the battered American financial sector was a short-term move to help banks to be able to begin lending again.
"Government's role will be limited and temporary," Bush pledged.
Edward van Wesep, an assistant professor of finance at the University of North Carolina told 麻豆影视net the measure must be limited and temporary.
"Certainly the current administration, and I suspect the next administrations, they don't want this to be a permanent entry of the government into the U.S. financial system. So as soon as the problems in finance and housing are resolved I expect the government to remove themselves."
Gartman said that while the stock markets are most likely now on the mend, the latest move does not mean the worst is over for the economy.
"You have probably many more problems to work through as far as mortgages are concerned, you have the restoration of confidence (that) will take a long period of time, banks last week simply did not trust one another. Rather like a wife who finds out her husband has gone out and had an affair, it takes a long period of time to restore real confidence and real trust."
Van Wesep added that from a financial perspective this bailout is all the banks should need to recover, but when it comes to restoring confidence in the system, "This may or may not do it."
Tuesday's announcements were the latest in a number of moves by the U.S. government to combat a global credit crisis that is threatening to push the country into a deep recession.
With files from The Associated Press
