America follows Europe to tackle the financial crisis. Wesley Johnson reports.
THE US Government unveiled a plan to spend $250bn on buying bank shares yesterday in a move which echoed the strategies of the major European governments.
President George Bush said the US was taking “unprecedented and aggressive steps” to tackle the financial crisis and international economic leaders have the “full support of the United States”.
He announced the plan, which will see the US buy equity stakes in a “wide variety of banks”, following an early morning meeting with his financial advisers.
Mr Bush said: “Federal agencies have moved decisively to shore up struggling institutions and stab-ilise our markets. And the United States has worked with partners around the world to co-ordinate our actions to get our economies back on track.”
He said the decision of Euro-pean leaders to purchase equity in major banks and provide tempor-ary government guarantees for bank loans were “wise and timely actions, and they have the full support of the United States”.
The injection of US capital us-ing money from the $700bn (£398bn) rescue plan, seen by many as a Wall Street bail-out, “will help struggling banks fill the hole created by losses during the financial crisis, so they can resume lending and help spur job creation and economic growth,” said Mr Bush. “This is an essential short-term measure to ensure the viability of America’s banking system.”
Mr Bush's announcement came after the Dow Jones industrial average of blue chip firms gained more than 11% – its biggest one-day gain since 19 – in a huge rally on Monday.
Traders reacted with relief to efforts by the US and Europe to inject capital into banks and get lending flowing again.
The American move also follow-ed a £37bn bail-out by the UK Treasury of three leading British banks as governments around the world pumped trillions of dollars into private institutions.
US Treasury Secretary Hank Paulson admitted he had to over-come ideological objections to the plan, but couldn’t find another option.
“The government owning a stake in any private US firm is objectionable to most Americans, me included,” he said. “Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.
“We regret having to take these actions,” he said. “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.”
In addition, the Federal Reserve, the US central bank, said it would begin buying short-term debt on October 27.
Chairman Ben Bernanke wel-comed the steps and said policy-makers would continue to take actions to battle the crisis.
“Our strategy will continue to evolve and be refined as we adapt to new developments and the inevitable setbacks,” he said. “But we will not stand down until we have achieved our goals of repair-ing and reforming our financial system and thereby restoring prosperity to our economy.”
Prime Minister Gordon Brown yesterday warned fellow world leaders the stakes were “higher than ever before” as he called for agreement on reforms of the global financial system.
Ahead of a meeting of EU lead-ers in Brussels, the Prime Minis-ter said co-ordinated action to improve liquidity was not enough for long-term stability. Govern-ments around the world had to deliver reforms to restore confi-dence to the financial markets.
Mr Brown said: “We need to show we have dealt with the dif- ficulties’ cause in the first place, that we are making the re- forms that are necessary so that the glo- bal financial system will work.”
He added: “I believe the stakes are higher than ever before and the coming days will be crucial for the international community.”
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