It appears as though Secretary Paulson will finally cave and provide a direct cash infusion for ailing banks.
Bloomberg: Paulson told reporters in Washington yesterday that legislation Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks’ balance sheets. He indicated that an option available may be boosting companies’ capital with cash infusions.
“It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,” Paulson said. “We will use all of the tools we’ve been given to maximum effectiveness, including strengthening the capitalisation of financial institutions of every size.”
Banks worldwide aren’t raising enough capital to offset losses: while posting $592 billion of writedowns and losses during the crisis, they have added just $442.5 billion of new capital, according to data compiled by Bloomberg. The International Monetary Fund anticipates losses will more than double to $1.4 trillion.
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