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US taxpayers set to buy into banks -

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ELEANOR HALL: Breaking news in the US and the details are emerging about a massive bailout by the
US Government of America's banking system.

The Bush administration is reportedly planning to buy stakes in nine banks. They include the Wall
Street giants Citigroup, Goldman Sachs, JPMorgan and Morgan Stanley, as well as America's biggest
bank, Wells Fargo.

Economics correspondent Stephen Long joins us now with more.

Stephen what can you tell us about this US plan?

STEPHEN LONG: There is at this stage no formal announcement but it is being widely reported that
the Bush administration through the Secretary Hank Paulson and the Treasury are planning to buy
preferred stock in these nine banks and Citigroup, Wells Fargo, JPMorgan Chase, Bank of America,
Goldman Sachs, the old alma martyr of the Treasury Secretary Hank Paulson, Morgan Stanley, State
Street Corp and Bank of New York Mellon Corp.

And there's talk that it could be about half of the $US250-billion that's been earmarked in the
first tranche of the rescue of the US financial system.

ELEANOR HALL: Now the British Government has bought big stakes in some banks including the Royal
Bank of Scotland. Is this an American version of that plan?

STEPHEN LONG: There are key difference and critical differences that tell you something about the
different styles that are being undertaken in the way this is being done in America and Europe.

If you look at what's happened in Britain, they're in effect part nationalising and going close to
fully nationalising the key banks that are in trouble.

So in exchange for pumping in about hundreds of billions of dollars, about $70, $80-billion into
Royal Bank of Scotland and HBOS and Lloyds TSB Group in England. They will, these companies will
have to see majority control to the government. Give Prime Minister Gordon Brown seats on their
boards, halt dividend payments to shareholders and stop paying cash bonuses to directors.

Now if the report's right, in the US they're looking at taking a form of stock that will be
non-diluting for the existing shareholders and this is a key difference in philosophy; Hank Paulson
believes that if you wipe out shareholder equity then you don't encourage private investors to come
into the banking system.

So they're looking basically to really give a leg up to the banks over there. Government puts in
money...

ELEANOR HALL: What does it get in return?

STEPHEN LONG: Well at this stage, not clear. I think that they would consider stabilising the
markets and avoiding a catastrophic meltdown - return enough.

But it's a very different approach to that being taken in Britain where the government has a clear
equity stake with control.

ELEANOR HALL: This combined effort does seem to be restoring confidence, does it mean that we're
seeing at least the beginning of the end?

STEPHEN LONG: Well I would say no, in a word. What you're seeing at the moment is a measure with
basically all the big guns being fired to stabilise the economy and stabilise financial markets.

If we hadn't seen this government intervention on such a massive scale what we would have seen was
a near term catastrophic meltdown of the global financial system which almost inevitably would have
resulted in a major recession if not a depression.

They're looking to avoid that but we still have real world fallout flowing from what we've seen
already and it doesn't mean that the good old days of easy credit which underpin the boom are going
to continue, we're still looking at unwinding the biggest leveraged asset price and credit bubble
in the history of humanity.

The question is can we unwind it in an orderly fashion or a disorderly fashion?

These big gun efforts, this blitzkrieg saturation bombing of the problem by governments should
hopefully mean it's more orderly than it looked like it was in danger of being.

ELEANOR HALL: Stephen Long our economics correspondent thank you.