President Bush announced the new plan in televised remarks before the opening of the New York Stock Exchange on Tuesday. He and his economic team described the bank intervention as something intended to preserve the free market, not bury it.
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.