Instead, the Feds will adopt the UK’s strategy of injecting equity into the banks as a means of rejuvenating the market and increasing confidence in the banking sector.
US Treasury secretary Hank Paulson says: “I will not issue an apology for changing this strategy when the facts change. We had to move quickly. What we said in Congress then was what was needed.”
Reports suggest that the mere existence of the Tarp was hindering the wholesale markets in the US – investors were unwilling to buy assets until the Government began buying up the bad mortgage debt.
Paulson says this strategy, which follows Gordon Brown’s lead, will make banks “more confident and better positioned to play their necessary role to support economic responsibility”.
The USA is facing a huge recession as unemployment soars – as a result the next President Obama may wish to use some of the $700bn to aid the ailing car manufacturers like GM. Paulson denied that he would be backing such a move.