Updated: Tue Oct. 14 2008 09:47:00

CTV.ca News Staff

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 CTV Newsnet 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 CTV Newsnet 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

Comments are now closed for this story

GP
Here we go...another Bush administration nightmare.

Bush should be bringing in the two presidential candidates that will inherit this nightmare and be listening to their feedback...but that would be too much for these clowns…the stupidest president/administration in the history of America.

The taxpayers of the western world are on the hook here for a staggering amount of money. We need to make sure this is done as right as possible, i.e. there is no profiteering by the idiots that created this mess…they’re really not that hard to find. As well we need to fix the system…find a balance between rewarding innovation and (ethical) risk taking and that of protecting consumers so the steady stream of “schemes” of the last 2 decades comes to an end…start with the S & L scandal and work your way back.

My suggestion, stop focusing only on profits and start rewarding sustainability with associated bonuses for innovation and accountable risk taking…relegate greed to the backburner and not as the sole motivator for all decisions in the corporate boardrooms.

Mike
Sounds like ronnie raygun "trickle down" economics i.e. the product of a diseased mind.

peter in BC
George W. will go down in history as the worst and most unpopular president in history. But what I cannot understand is that the American people impeach a president because of a discrete encounter but they won't impeach a president for destroying their own country and economy. His popularity ratings speak for themselves, his economic track record speaks for itself, so why have they endured this for 8 years already?

Glad he will be gone soon. Sad that he will be gone as I won't be able to wear my "moron" t-shirt with his mug on it with the same pride as I do now!

Face it, their economy is tanking huge and we all must brace ourselves for the impact on the Canadian economy regardless of what Harper says/believes. They can only put so many band-aids on their economy before the blood will bleed through.

FN
I just wonder how long it will be before the US (as a whole country) declares bankrupcy.

It will happen. It's not a matter of if, but when.

They won't be the first country to do so, and will not be the last.

Steve G
Typical right wing capitalism. When times are good, they want gov't to stay out of the way, but as soon as the well runs dry, they are first in line, cap in hand looking for the corporate welfare.

Raymond
Bush might be a dud, but ALL of the US administrations dating back to Jimmy Carter had a hand in this. Carter and Clinton took steps to assure welfare recipients could buy homes, recognizing welfare as 'income', and instructing lending agencies to do likewise. It was bound to fail sooner or later. There's always going to be owners and renters...

Socialist Bush with more big government spending
Privatize the profits but force taxpayers to eat the crap.

Typical of phony "free market" advocates.

Mr Chillz
@ FN:

They already have declared "bankruptcy",...just like CANADA has long time ago,....

The history of the "Fed" tells us that.

George Soros, the billionaire, states it clearly:
The notion that markets are self-correcting led to a massive expansion of debt financing that culminated in the sub-prime mortgages that epitomized the easy-money mentality at the root of the disaster, he said.

"This belief became the dominant creed. And this, then, led to the globalization of markets, the deregulation of markets and the increased use of leverage and all the financial engineering," Soros said.

"This whole enormous construct is built on false conceptions," he added. "You can go a very long way. But in the end, reality rears its ugly head and that's what happened now."

Victor King
Washington has always hail the superiority of capitalism. It is a model for the world to follow. It solves all problems. However, everything is not perfect and its beginning to see the might of socialism. Hence, state ownership in certain segment of the economy. As we see, socialism is not all bad and neither is capitalism. We now live in a world of mixed economy. China is inching to right and US is moving to the left. The happy medium is somewhere in the middle when harmony can exist. Extreme economy is only the beginning of its end. The disintegration of the Soviet Union overnight many years back is a typical example when extreme economy happens. US is lucky this time because it averted an economic revolution by stepping in just in time. People could have easily taking onto the street and rebel. This is certainly a lesson to be learned. It is not shameful to suggest US is becoming like France or any other social states because the perfect economy is a mixed economy.

justaguy
"Government's role will be limited and temporary," Bush pledged.

Like Iraq?