Paulson: Stock buys should make money

October 20, 2008 8:53:06 AM PDT
Treasury Secretary Henry Paulson said Monday that government purchases of stock in banks represent an investment that should eventually make money for the taxpayer.Paulson said the government will own shares in the banks that should be paid back with a reasonable return and the government will also receive warrants for common shares in the banks.

"This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything," Paulson said at a Treasury briefing on the program. "This program is designed to attract broad participation by healthy institutions and to do so in a way that attracts private capital to them as well."

Paulson said program's goal is to increase investors' confidence in banks and to boost the confidence of the banks, too, so they will "deploy, not hoard, their capital."

He made his comments as he announced a streamlined application process for banks to apply to sell shares to the government by a deadline of Nov. 14.

The application process features a two-page form that banks must fill out and return to their primary regulator who will review it and then foward it to the Treasury Department. Treasury will make the final decision on which institutions will receive stock purchases.

Paulson summoned nine of the country's major banks to the Treasury Department a week ago on Oct. 13 where he pressured them to agree to sell preferred stock to the government. Paulson wanted the largest banks participating to remove any stigma from other banks going to the government to sell stock.

Those firms, which account for 50 percent of the deposits held in the country, will receive $125 billion in stock purchases by the government. The government will use the other $125 billion to purchse stock in potentially thousands of other banks and savings and loans around the country.

Paulson said all stock sales to the government would be announced within 48 hours of their execution.

The $250 billion in direct stock purchases are part of a $700 billion government rescue program for the financial system that Congress passed on Oct. 3.


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