Feds buying into nine banks, Paulson says

WASHINGTON, Oct. 14 (UPI) -- U.S. Treasury Secretary Henry Paulson said Tuesday the department would buy stakes in nine banks to help restore confidence in the financial system.

"Government owning a stake in any private U.S. company is objectionable to most Americans -- me included," Paulson said while outlining portions of the $700 billion rescue plan. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable."

Nine large banks agreed to participate in the program in which the Treasury Department will use $250 billion of the $700 billion intervention package to buy stock.

In addition to banning golden parachutes for executives of the institutions participating in the program, the government expects the banks "to continue and to strengthen their efforts to help struggling homeowners who can afford their homes avoid foreclosure," Paulson said.

"These are healthy institutions, and they have taken this step for the good of the U.S. economy," he said.

Besides the Treasury Department's actions, the Federal Deposit Insurance Corp. will guarantee most new debt issued by insured banks and expand government insurance to cover all non-interest-bearing transaction accounts, President George Bush announced. Both actions are effective immediately and temporary.

Also, the U.S. Federal Reserve soon will finalize a new program to act as a "buyer of last resort" for commercial paper, a key source of short-term financing for U.S. businesses and financial institutions, Bush said, helping businesses meet payroll, buy inventory and "invest to create jobs."

"Combined, our actions are extensive, powerful and transformative," Paulson said. "These three steps significantly strengthen financial institutions and improve their access to funding, enabling them to increase financing of the consumption and business investment that drive U.S. economic growth."