Their distaste for the partial nationalization was obvious. Only weeks ago, Secretary of the Treasury Henry Paulson explicitly rejected in a congressional appearance the notion of injecting funds directly in banks. Now he was proposing that same thing.
"We regret having to take these actions," Secretary Paulson said. "Today's actions are not what we ever wanted to do – but today's actions are what we must do to restore confidence in our financial system."
Under the new multifaceted stabilization program, the government will initially buy stocks in major US banks. Nine banks have agreed to participate. Smaller banks and thrifts will also be able to get involved in the federal buy-up program.
When financial markets stabilize and recover, the banks are expected to buy the stock back from the government, according to administration officials.
In addition, the Federal Reserve announced it will begin buying vast amounts of commercial paper on Oct. 27. This short-term debt is a crucial form of funding that many companies use to pay workers and buy supplies.
Clearly, the US government is moving to try anything and everything it thinks might work to keep the country and the world from falling into a deep recession.
"Our strategy will continue to evolve and be refined as we adapt to new developments and the inevitable setbacks," said Fed Chairman Ben Bernanke.
The US purchase of bank stock isn't exactly unprecedented. In the 1930s, under Roosevelt, the Reconstruction Finance Corp. both made loans to distressed banks and bought into them directly.
In World War I, Washington seized railroads to ease movement of troops and military supplies. Key industries were similarly nationalized in World War II. All were returned to owners when combat ended.
In 1952, President Truman seized the steel mills, lest a crippling strike hurt the Korean War effort. The Supreme Court eventually ruled that the nationalization was an unconstitutional abuse of power.