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October 14, 2008

US Invests $250 Taxpayers’ Money in Banks

The US government is pumping liquidity into its banks in return of a stake. Treasury Secretary Paulson announced plans of using $250 billion taxpayer’s money to make investments in nine banks, for a start.

Paulson refrained from naming the banks, but people familiar with the matter said that the preferred stocks to be bought by US government will be split out as follows per Bloomberg and New York Times:

• $25 billion for each of the following: Citigroup Inc., JPMorgan Chase & Co. , Bank of America/Merrill Lynch
• $20 billion for Wells Fargo & Co.
• $10 billion each for Goldman Sachs Group Inc. and Morgan Stanley
• $3 billion each for State Street Corp. and Bank of New York Mellon Corp.

An additional $125 billion will be used to recapitalise other financial institutions, and the full $250 billion is expected to have been used by year end, said an anonymous source. Similar moves in Europe helped restore some confidence in the markets after last week’s drastic price swings.

The coordinated efforts of European leaders and the US initiative allowed the markets to breathe again, with the exception of the Icelandic stockmarket. The market’s reaction to the announcement of the European rescue packages confirms that this is exactly what the markets needed to see – unified financial support.

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