A hint of socialism

The US administration began buying up bank shares

US Treasury Secretary Henry Paulson's plan to allocate $700 billion to save the American financial system has finally begun to be implemented. Yesterday it became known which preferred shares of which banks the state will buy first, spending $250 billion on this. Half of this amount will go to support nine US banks, including such giants as Citigroup, Goldman Sachs Group , JP Morgan Chase & Co., Bank of America Corp. (including the soon to be acquired Merrill Lynch ) and Morgan Stanley . As Mr. Paulson said yesterday, quoted by Bloomberg, “leaving businesses and consumers without access to financing is simply unacceptable.” He called on banks that will receive support under the announced plan to use these funds to support economic growth in the country. “The economy requires that our financial institutions attract capital not for accumulation, but for its use.”

In his speech, Mr. Paulson did not name the nine major banks that would participate in the program. “These are healthy financial institutions and they are taking this step to support the US economy,” he said. “These companies, like thousands of others, will have greater opportunities to perform their vital function of lending,” US President George W. Bush said in a speech. However, a source familiar with the “Paulson plan” announced this list: in addition to the already mentioned giants, it includes Wells Fargo & Co., Bank of New York Mellon and State Street Corp. These financial institutions are expected to receive about $125 billion from the government. They will have to introduce restrictions on payments to top managers and so-called “golden parachutes” (compensations for fired executives). In addition, banks will need to provide the Ministry of Finance with the right to purchase ordinary shares in an amount equal to 15% of the package of preferred shares that will be purchased by the government. During the first five years after the redemption of preferred shares, dividend payments will be 5%, after the expiration of this period - 9%.

According to The Washington Post, the heads of the largest banks agreed to transfer some of their shares to the government in exchange for financing after Mr. Paulson personally told them that it was necessary for the sake of the national economy. After all, participation in the program by the country's leading banks will send a signal to smaller banks that they "should not be ashamed to accept government funding." In this regard, The New York Times recalls that the measures taken by the Bush administration in the banking sector are partial nationalization, but in the United States they try not to utter this word publicly. "Elsewhere, government investment in banks is commonly referred to as nationalization programs, but this is unlikely to happen in America, where the word 'nationalization' is to be avoided due to an aversion to anything that hints at socialism," the newspaper writes.

Ivan GORDEEV