TARP meant to provide liquidity, transparency

The TARP program is not large enough by itself to soak up all the bad assets on bank books, Bernanke says, but it is a mechanism that will bring greater liquidity and visibility to the frozen markets for these distressed assets.

Stocks are on the defensive once again, down about 400 points. EUR/JPY is edging toward the 137.00 area once again.

Paulson makes banks an offer they literally couldn’t refuse

Take it or take it. That’s the negotiating style of Hank Paulson. I wouldn’t want to be on the other side of the boardroom table from him, that’s for sure.

Bush says plan to be limited and temporary

Bush laid out the broad outlines of the rescue plan, saying its intent is to be limited and temporary, aimed at preserving free markets. Banks will be able to buy back their equity when they are able to raise capital in public markets.

Paulson will add more details to the framework shortly.

Confidence returns further after US measures factored

The outlines of the US bank restructuring plan were leaked last night and the market reaction has been positive. Risk aversion continues to recede as credit markets begin to thaw. The US has thrown billions of capital at US banks, both those that need it and those that don’t. The idea is to remove any stigma associated with the acceptance of government capital.

EUR/USD is holding below Monday’s 1.3780 high but USD/JPY has exploded, dragging EUR/JPY up to the 141.50 area. Spot edged above 103.00 before consolidating. Commodities currencies are way up as well, as one would expect; this is a measured of receding panic.  Equities are up better than 5% on average across Europe and interest rates are soaring as money moves out of Treasuries into “riskier” assets.

Nine banks to get $125 bln in capital

Bloomberg reports half the $250 bln to be injected into the banking system will go to these nine banks.

Interbank lending guarantee part of US package

Along with the $250 bln equity infusion, Reuters reports that the US will guarantee interbank lending for a period of three years. This should restart the credit markets in a hurry.

EUR/JPY is flying on the news, trading now on the 139-handle, up from 132.25 lows posted Friday. USD/JPY is at 102.35 after nearly reaching 102.50.

US to take stakes in potentially thousands of banks

The Journal reports the Treasury, FDIC and Fed are prepared to roll out a sweeping bank recovery plan that includes $250 bln in equity investments in potentially thousands of banks.

No interbank guarantee from US government

No clearing house function or guarantee of interbank lending is thus far forthcoming from the US Treasury. Their focus is commercial paper, Paulson said. This will disappoint the market.

Paulson lays out bank plan

Paulson says the US is developing plans to purchase equity capital in financial institutions. Private capital will be raised alongside public capital. Stock would be non-voting but would have investor protects.

Paulson said in a statement that the G7 finalized plans for market liquidity and to strengthen financial institutions.

Momentum growing for direct capital injections into banks

The US plans to inject capital into banks in exchange for common and preferred stock, Reuters reports. The injections were authorized in last week’s TARP bill and could begin by the end of October (if there still are banks at the end of October). The Treasury investments would be passive with no board representation and would be voluntary. Sounds sort of like a US sovereign wealth fund, just without the wealth…

Stocks have turned positive on the news and EUR/JPY has rebounded after a morning pullback.

UPDATE: The White House confirms Paulson is “actively considering” direct capital injections.