Tuesday, October 14, 2008

Capital Injections

The patient has lost a lot of blood, but he’s showing signs of life: the doctor has an unlimited supply of plasma. The WSJ reports [emphasis added]
The government will purchase equity shares in banks to help institutions unfreeze lending and spur economic growth. Funds for the purchases, which may amount to $250 billion, will come from the recently passed $700 billion bank rescue bill. [snip]

The Federal Deposit Insurance Corp. will temporarily guarantee most new debt issued by insured banks. [President Bush] said that will make it easier for banks to borrow money, which can then be lent to consumers. The FDIC also will "immediately and temporarily" expand its insurance to cover every dollar in all noninterest-bearing transaction accounts, which are widely used by small businesses to cover day-to-day operations.
The Dow Jones Industrial Average was up 11% yesterday and another 1.5% as of this writing (0710 PDT). It will be years before a full recovery, but the patient appears to be out of danger.

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