Skip to next paragraph Speaking shortly after President Bush used similar terms to describe the proposal, Mr. Paulson said the Treasury would make $250 billion available to banks to help recapitalize those banks and to get them lending again, among themselves and to businesses and consumers. “The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,” Mr. Paulson said, who offered some details of the plan along with the Federal Reserve chairman, Ben S. Bernanke, and the chairman of the Federal Deposit Insurance Corporation, Sheila C. Bair. With the proposal, the United States follows similar plans announced Monday across Europe — almost all intended to inject money into the banks and unfreeze the credit markets. Markets around the world have rebounded on news of the coordinated efforts. The Dow Jones industrial average gained 936 points, or 11 percent on Monday, the largest single-day gain in the American stock market since the 1930s, and gained more than 300 points more in the opening minutes of trading on Tuesday. European markets were up at least 5 percent on Tuesday after rising nearing 10 percent Monday. In addition to injecting money into the banks, according to the plan, the United States would also guarantee new debt issued by banks for three years — a measure meant to encourage the banks to resume lending to one another and to customers. The F.D.I.C. would also offer an unlimited guarantee on bank deposits in accounts that do not bear interest — typically those of businesses — bringing the United States in line with several European countries, which have adopted such blanket guarantees. And the Federal Reserve would start a program to become the buyer of last resort for commercial paper, a move intended to help businesses get the money they need for day-to-day operations. Calling the need to inject money into banks regrettably, Mr. Paulson said it was nevertheless necessary. “The alternative of leaving businesses and consumers without access to financing is totally unacceptable,” Mr. Paulson said. “When financing isn’t available, consumers and businesses shrink their spending, which leads to businesses cutting jobs and even closing up shop.” Mr. Bernanke, echoing Mr. Paulson’s comments, said, “Americans can be confident that every resource is being brought to bear,” including political leadership. “I strongly believe” that the application of the measures together with resilience of American economy “will help restore confidence,” Mr. Bernanke said.   As the White House has done since the House of Representatives rejected the initial bailout legislation, Mr. Bush sought to assure Americans that the efforts were necessary to protect their savings and retirement. Each of the programs protects taxpayers, Mr. Bush said, and was “limited and temporary.” “I recognize that the action leaders are taking here in Washington and in European capitals can seem distant from those concerns,” he said. “But these efforts are designed to directly benefit the American people by stabilizing our overall financial system and helping our economy recover.” Mr. Paulson outlined the plan to eight of the nation’s leading bankers at a meeting Monday afternoon. He essentially told the participants that they would have to accept government investment for the good of the American financial system, according to officials. On Monday, big banks agreed to take investments totaling about $125 billion. Citigroup and JPMorgan Chase will receive $25 billion each. Bank of America, which is acquiring Merrill Lynch, and Wells Fargo, which is acquiring the Wachovia Corporation, will receive $25 billion. Goldman Sachs and Morgan Stanley will receive $10 billion each. And Bank of New York Mellon and State Street will get $2 billion to $3 billion. Another $125 billion is allocated for thousands of small and midsize banks. They will be eligible for government investments reflecting a similar proportion of their assets. On Tuesday, Mr. Paulson said that in return for the investment, the government would receive preferred shares and warrants for common stock. In addition, he said, the government would expect a reasonable return. And he said, “Institutions that sell shares to the government will accept restrictions on executive compensation, including a clawback provision and a ban on golden parachutes during the period that Treasury holds equity issued through this program.” Over the weekend, central banks flooded the system with billions of dollars in liquidity, throwing out the traditional financial playbook in favor of a series of moves that officials hoped would get banks lending again. European countries — including Britain, France, Germany and Spain — announced aggressive plans to guarantee bank debt, take ownership stakes in banks or prop up ailing companies with billions in taxpayer funds.

Skip to next paragraph The bailout bill that President Bush quickly signed into law on Friday must do what financial experts have been unable to do for the last year — put a dollar value on mortgage-related assets that no one wants, move them off the books of ailing banks and unlock the frozen credit markets. In signing the measure, Mr. Bush warned Americans not to expect instant results. “This will be done as expeditiously as possible, but it cannot be accomplished overnight. We’ll take the time necessary to design an effective program that achieves its objectives — and does not waste taxpayer dollars.” Even after working feverishly over the last two weeks, the Treasury will not buy its first distressed asset from a bank for roughly six weeks, and almost certainly not until after the Nov. 4 elections. Treasury officials do not plan to manage the mortgage assets on their own. Instead, they will outsource nearly all of the work to professionals, who will oversee huge portfolios of bonds and other securities for a management fee. The Treasury is expected to name a senior official to supervise the program. For now, various working groups creating the program are reporting directly to Henry M. Paulson Jr., the Treasury secretary. Mr. Paulson has recruited several former colleagues from Goldman Sachs to advise him, though administration officials took pains to say that they were not dominating the process, pointing to other Treasury employees who were playing major roles. “We will move rapidly to implement the new authorities, but we will also move methodically,” Mr. Paulson said in a statement after the House passed the bill on Friday. The government will hire only a bare-bones internal staff of about two dozen people with expertise in asset management, accounting and legal issues, according to administration officials, and will outsource the bulk of the program to 5 to 10 asset management firms. Administration officials said they had not yet selected the list of firms to run auctions or manage the assets. During the last few weeks, the Treasury has informally consulted major firms — including BlackRock, the Pacific Investment Management Company and Legg Mason — but none have been given a mandate, they said. The selected asset management firms will receive a chunk of the $250 billion that Congress is allowing the Treasury to spend in the first phase of the bailout. Those firms will receive fees that are likely to be lower than the industry standard of 1 percent of assets, or $1 for every $100 under management. Administration officials said they would try to drive down fees with a competitive bidding process. But with $700 billion to disburse, the plan could still generate tens of billions of dollars in fees if the firms negotiate anywhere close to their standard fees. The main mechanism for buying these assets will be reverse auctions, using the same principles that govern auctions of electricity or the wireless spectrum. In this case, the government will issue an offer to buy a class of assets — for example, subprime mortgage-backed securities — with the final price being determined by how many banks are willing to sell. Using outside contractors on such an extensive scale raises a host of thorny questions, outside experts said. Among the most pressing is: How will the Treasury avoid conflicts of interest that fund managers will encounter as they work both for their own clients’ interests — which could pay higher fees — and the interests of taxpayers? “With anyone short of the stature and honesty of a Paul Volcker running it, you need to worry a lot about conflicts of interest,” said Alan S. Blinder, a former vice chairman of the Federal Reserve, referring to its former head. “Unfortunately, there just aren’t many people with the expertise you need but without any possible conflicts.” The Treasury officials said they were still writing a policy on conflicts of interest as well as guidelines on compensation. As if the mechanics were not daunting enough, Treasury officials need to make wrenching decisions that will determine the bailout’s winners and losers. With so much money on the line, lobbyists for interest groups are already besieging the government to decide in their favor. The prospect of pitching in during a national crisis has drawn unsolicited offers from prominent asset managers, like William H. Gross, the managing director of Pimco, who offered his services free. In setting up the program, Mr. Paulson has relied on a cadre of former Goldman Sachs executives: Edward C. Forst, a former co-head of Goldman’s investment management business who is on leave from his job as executive vice president at Harvard; Kendrick R. Wilson III, formerly chairman of Goldman’s financial institutions groups; and Dan Jester, who was deputy chief financial officer at Goldman. (Page 2 of 2)     But administration officials said several other Treasury officials were playing crucial roles, including six assistant secretaries: Peter B. McCarthy, Phillip L. Swagel, Neel Kashkari, Kenneth E. Carfine, David G. Nason and Kevin I. Fromer, who led the Treasury’s negotiating team on Capitol Hill.