World - US Clears way for bailout to begin

WASHINGTON: The government has cleared the way to ship out $125 billion this week to the largest U.S. banks, beginning the biggest government bailout in history.

Not only is the money ready to be sent to nine major financial institutions, including Bank of America, Citigroup Inc. and JPMorgan Chase, but the government is reaching preliminary agreements with a group of more than a dozen major regional banks, who will share a part of an additional $125 billion the government hopes to pump into the banking system.

Before the end of the year, Treasury Secretary Henry Paulson intends to spend $250 billion of the $700 billion bailout package buying ownership stakes in U.S. banks. The goal is to improve their balance sheets so that they will resume more normal lending practices and prevent the country from sliding into a deep recession.

Another $100 billion is earmarked to be spent buying troubled assets from banks such as bad mortgage loans as another way to spur banks to resume lending.

A long line of other industries are hoping the government will decide to help them as well. Insurance companies, automakers, hedge funds and foreign-owned banks are all making appeals to be included in the rescue package, contending that they need assistance as well.

The rescue programme is just one of the efforts the government is making to combat the worst financial crisis to hit the country since the 1930s. The Federal Reserve began a programme on Monday to purchase the short-term debt of businesses. This market has been frozen since the collapse of Lehman Brothers spooked credit markets last month.

Major change


That programme has undergone a major change in emphasis since it was passed by Congress. After global markets imploded, forcing other countries to rush to the aid of their banks, Mr. Paulson decided that it was urgent to get assistance to U.S. banks more quickly. He earmarked $250 billion for the stock purchase plan and only $100 billion for what had originally been the centrepiece of the proposal, the purchase of troubled bank assets.

Treasury has given the go-ahead for stronger banks to use the money to acquire troubled banks. That has prompted criticism the government could be getting into the position of picking winners and losers.