Treasury To Try Depression Era Tactic, Will Buy Stock In Financial Institutions

October 10, 2008 7:54 p.m. EST

Washington, DC (AHN) - Treasury Secretary Henry Paulson said Friday that they will move forward with the program to purchase stock in financial institutions. The Great Depression was the last time government had used such a plan.

Speaking at a news conference after the G7 meeting, Paulson said the government would hold nonvoting shares. He also said the program would cover a broad array of financial institutions. Paulson said the program will allow public and private money to work together as banks look to raise fresh capital.

This program is in addition to the $700 billion bank rescue plan. The centerpiece of that plan is the purchasing of distressed mortgage related debt in order to free up the banks balance sheets.

The Treasury is setting up an auction system to purchase the bad debt, with the help of a private asset management firm. A firm has not been selected yet, however the government said they the program would begin by the end of the month.

The authority to conduct a stock purchase plan, considered an emergency contingency, was included in the bank rescue plan and approved when the plan went through Congress.