Over the past few weeks there has been lot of action happning in the US financial circles.
The Treasury department set aside $700 Billion to help the economy to come back to normalcy.
Mr Neel Kashkari is the man responsible to spend the tax payers money.
Yesterday the 14th of october, Henery M Paulson had a meeting with the CEO s of 9 big banks in US and forced them to sign an agreement. The agreement talked about how the government would interveen into the US banking system. Below are the highlights of the terms and conditions
- The agreement forces the banks to sell their stocks to the government. Government will buy stocks worth $250 billion. Government would buy the stocks 20days from now. The price at which it buys would be the average price of these 20 days. By this way, if the investors get confidence in the banks the stock prices go up and the government pays more money to the banks, banks make profit, and in turn pay back the loan sooner. The government can resell the equities at anytime if it feels it can make profit out of it. The number of stocks bought by the government will be determined by the capital infusion used by the bank. The bank has to sell shares worth 15% of the loan it takes from the government. If the bank gets $100 million, it has to sell shares worth $15 million to to the government.
- Government is guaranteeing loans to the banks and planning to collect a fee for doing so. The interest rate at which the government plans to lean the money is 5% for the first 3 years and 9% from then on till the loan is recovered, there is no restriction on the number of years the bank takes to repay the loan. The government decides which banks get chosen for the program and the criteria is not disclosed.
In an attempt to cut down the high pays and golden parachutes that are given to the top executives of the companies government is thinking to bring in certain regulations. The executives who earn more than $ 500,000 will be charged with higher tax rates.
