Cause for optimism

Local bankers are hopeful that the U.S. plan will spur lending

President Bush announced yesterday a $250 billion plan for the government to buy shares in the nation's leading banks. Nine banks will take part initially, with potentially thousands of others to follow. Treasury Secretary Henry M. Paulson Jr. wanted healthy institutions to go first, to remove any stigma associated with such bailouts.

The first bank to take advantage of the program was Bank of New York Mellon, which said it would sell $3 billion in preferred shares to the Treasury.

What it hopes to accomplish: Banks may now have more confidence to lend to other banks and to consumers and businesses. If they don't, the U.S. could be facing a painful recession.

What's next: Once the financial markets stabilize and recover, the banks are expected to buy the stock back from the government, Bush said. The Federal Reserve said its plan to buy vast amounts of short-term debt, to try to unclog the credit pipeline and provide corporate funding, will start Oct. 27.

Associated Press