Treasury Secretary Henry Paulson emerged from a meeting with officials from the Group of Seven major industrialized nations today and announced the U.S. will purchase stock in banks and financial firms for the first time since the Great Depression.

U.S. Treasury Secretary Henry Paulson emerged from a meeting with officials from the Group of Seven (G-7) major industrialized nations today and announced the United States will purchase stock in banks and financial firms for the first time since the Great Depression.

The government will buy nonvoting shares as part of a program "designed to encourage the raising of new private capital to complement public capital," Paulson said.

The president’s Working Group on Financial Markets is developing a standardized investment program that will be open "to a broad array of financial institutions," Paulson said.

Critics of the Bush administration’s plan to borrow up to $700 billion to purchase troubled assets from banks and financial institutions say it won’t "recapitalize" them quickly enough to unfreeze credit markets and prevent the financial crisis from deepening.

While this week’s sell-off in global stock exchanges has grabbed headlines, some economists see the reluctance of banks to lend money to each other — as reflected in higher short-term interest rates — as an even bigger problem.

The rise in the London Interbank Offered Rate, or LIBOR, is expected to increase monthly payments for homeowners with adjustable-rate mortgage (ARM) loans (see story).

Britain this week acted to restore interbank lending by providing cash to troubled banks in exchange for ownership stakes in them — a partial nationalization, the Associated Press reported.

Paulson said today’s meeting of the G-7 finance ministers and central bank governors also produced an "aggressive action plan" to provide liquidity to markets, strengthen financial institutions, protect savers, and enforce investor protections.

International Monetary Fund Managing Director Dominique Strauss-Kahn urged such concerted action Thursday, saying cooperation between nations has been lacking in efforts to tame the credit crunch (see story).

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