US Treasury uneasy with propping ailing banks

The US Treasury Secretary Henry Paulson expressed unease with the Government’s plan to buy stakes in ailing banks but said the moves were essential to thaw the system.

‘Government owning a stake in any private US company is objectionable to most Americans – me included. Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable,’ he said.

The lack of confidence in the financial system poses ‘an enormous threat to our economy,’ he said.

‘Without confidence that their most basic financial needs will be met, Americans lose confidence in our economy, and this is unacceptable.’

According to the plans, the US government will purchase stakes in nine large financial institutions.

Paulson said he regretted having to take these actions but that they were necessary to restore confidence.

From the $700bn financial rescue package, the Treasury will make $250bn in capital available to US financial institutions in the form of preferred stock.

‘The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,’ urged Paulson.

He reiterated that the government would do what is necessary to prevent the failure of any systemically important institution.