Washington Post: U.S. Clears Path to Bank Takeovers

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U.S. Clears Path to Bank Takeovers
Obama's Revised Plan for Industry Aid Could Result in Nationalization

By Binyamin Appelbaum and David Cho
Washington Post Staff Writers

Tuesday, February 24, 2009; Page A01


The Obama administration yesterday revamped the terms of its emergency aid to troubled financial firms, setting a course that could culminate with the government nationalizing some of the country's largest banks by taking a controlling ownership stake.

Administration officials said the change, which allows banks to repay the government with common stock rather than cash, is intended to give banks more capital to withstand a continued deterioration of the economy, and not to nationalize the banking system.

But in seeking to bolster investor confidence in troubled companies such as Citigroup, the government said it is willing to acquire large chunks of their shares. .

The move is a significant gamble. The magnitude of the effort could underscore the severity of the crisis, further alarming investors. The government could also forego billions of dollars in dividend payments.

Some investors welcomed the announcement. Even as the Dow Jones industrial average fell 251 points to its lowest close since 1997, shares of Citigroup climbed 10 percent. Shares of another troubled firm, Bank of America, rose about 3 percent. ........(more)

The complete piece is at: http://www.washingtonpost.com/wp-dyn/content/article/2009/02/23/AR2009022300958.html