A drastic new plan to shore up the banks

The government unveiled a stunning $250 billion plan to partially nationalize U.S. banks in order to create confidence in the banks' solvency and to free up paralyzed credit markets.

What happened

In the largest federal intervention in the banking system since the Great Depression, the government this week unveiled a stunning $250 billion plan to partially nationalize U.S. banks. Under the plan, the U.S. will spend $125 billion on new stock issued by the nine largest U.S. banks, with an additional $125 billion going to regional and community banks. The moves were coordinated with similar capital injections by the British and E.U. governments, and are designed to create confidence in the banks’ solvency and free up paralyzed credit markets. Treasury Secretary Henry Paulson called the measures “distasteful,” but said the extraordinary government investment was the best way to get banks to resume making loans and kick-start the economy. “The needs of our economy require that our financial institutions not take this new capital to hoard it but to deploy it,” he said.

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