Government moves again to unclog credit lines

The president said the decision to to buy shares in the nation's leading banks--a kind of federal intervention not seen since the Depression era--was "not intended to take over the free market but to preserve it."

Said Treasury Secretary Henry Paulson: "We regret having to take these actions. Today's actions are not what we ever wanted to do--but today's actions are what we must do to restore confidence to our financial system."

Nine major banks will participate initially including all of the country's largest institutions, he announced, in a move that sent stocks soaring on Wall Street.

Some of the nation's largest banks had to be pressured to participate by Treasury Secretary Henry Paulson, who wanted healthy institutions that did not necessarily need capital from the government to go first as a way of removing any stigma that might be associated with banks getting bailouts.

It was the latest in a long series of moves taken by the administration and the Federal Reserve over the past several weeks to prop up a weakening financial industry. The economic picture in the United States had been darkening for months, but the slump took on new urgency--and had greater global repercussions--amid record-setting selloffs on Wall Street and enactment of a $700 billion bailout bill.

Under the new multifaceted stabilization program described Tuesday, the government will initially buy stocks in nine major U.S. banks. When financial markets stabilize and recover, the banks are expected to buy the stock back from the government, Bush said in brief remarks from the White House Rose Garden.

"These efforts are designed to directly benefit the American people by stabilizing the financial system and helping the economy recover," he said.

Paulson told a Treasury Department news conference that the aggressive government intervention was "what we must do to restore confidence in our financial system."

The Federal Reserve, meanwhile, announced that it will begin buying vast amounts of short-term debt on Oct. 27--its latest effort to break through a credit clog. The Fed is invoking Depression-era emergency powers to buy commercial paper--a crucial short-term funding that many companies rely on to pay their workers and buy supplies. Last week the Fed said it intended to take the action but didn't specify when.