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Paulson calls a meeting of major U.S. banks

Washington_The Treasury and Federal Reserve are meeting Monday with "leading financial market participants" to finalize details on a market stabilization initiative, a Treasury spokeswoman said.

The confirmation of the meeting comes as several European countries have announced initiatives to recapitalize banks and guarantee interbank lending. The Treasury and Fed could announce a similar initiative as early as Tuesday. Treasury Secretary Henry Paulson has called a meeting with top bank chiefs for 3 p.m. ET.

The Bush administration said earlier Monday it is moving quickly to implement a $700 billion rescue program, including consulting with private law firms on how to buy ownership shares in banks to help thaw frozen lending and get the economy moving again.

The announcement came as Europe's central banks began to take unified actions Monday aimed at easing the credit crisis.

The coordinated efforts by European and U.S. authorities to prop up the banking system brought a measure of relief to markets. U.S. stock prices were sharply higher, following Europe's lead in response to the widespread government initiatives.

"These are tough times for our economies yet we can be confident that we can work our way through these challenges and America will continue to work closely with the other nations to coordinate our response to this global financial crisis," President Bush said following a meeting with Italian Premier Silvio Berlusconi.

Monday's meeting at the Treasury are aimed at finalizing details on the rescue package Congress passed on Oct. 3.

The package has quickly expanded from purchasing financial firms' bad debt to include the government taking partial ownership in banks, among other possible steps.

Over the weekend, Paulson called the heads of the five biggest U.S. banks to come to Washington for face-to-face talks about the rescue plan, according to people briefed on the matter. They were not authorized to speak publicly because of the sensitivity of the negotiations.

Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack, Citigroup CEO Vikram Pandit, JPMorgan Chase & Co. CEO Jamie Dimon, and Bank of America Corp. CEO Kenneth Lewis were all asked to attend. There was some speculation that Paulson might have expanded the invitation to at least three other CEOs from regional banks, the people said.

It was expected that whatever comes out of the meeting will be used to put the finishing touches on the plan, the people said.

The administration's interim bailout package chief, Neel Kashkari, said early Monday the government is moving quickly to implement the rescue program, including consulting with private law firms on how to buy stakes in banks to boost their cash reserves.

He spoke as The Bank of England, the European Central Bank and the Swiss National Bank jointly announced they would work together to provide unlimited short-term funds to make money available to ease the credit freeze. The Bank of Japan said it was considering a similar move.

To assist the European banks, the Fed said it was taking actions to assure enough U.S. dollar funds were available to meet demand.

"The government cannot just leave people on their own to be buffeted about," said British Prime Minister Gordon Brown.

European governments said they are putting nearly $2 trillion on the line to protect the continent's banks through guarantees and other emergency measures. Pledges by Britain, Germany, France, Spain, Austria and Portugal in recent days have reached a total of $1.96 trillion. The sums are considered a maximum, and might not all be spent if the financial crisis eases.

The administration Monday also announced the selection of a team of interim managers, picked an outside firm to help run the program and tapped Fed Chairman Ben Bernanke to head up the oversight board guarding against conflicts of interest.

Kashkari, the assistant Treasury secretary who is interim head of the program, said officials were developing the guidelines that will govern the purchase of bad assets and had consulted with six specialist law firms on how the government will take partial ownership of banks.

After those consultations, Kashkari said Treasury had chosen Simpson Thatcher & Bartlett LLP to move forward to help the government structure the stock purchase program.

"We are moving quickly - but methodically - and I am confident we are building the foundation for a strong, decisive and effective program," Kashkari said in a speech Monday to the Institute of International Bankers.

Kashkari, however, provided few details about how the program will actually buy bad assets and partial ownership in banks. He focused mainly on the nuts and bolts of getting the program running.

He said five veteran government officials had been chosen as interim heads of key components of the program including Tom Bloom, currently the chief financial officer at the Office of the Comptroller of the Currency, to serve as the chief financial officer for the rescue program.

Kashkari said seven policy teams at Treasury had been created to focus on the different aspects of the program including buying bad assets such as mortgage-backed securities.

Kashkari announced that investment consultancy Ennis Knupp & Associates had been chosen as the private firm that will help Treasury review proposals from asset management companies. He said that 70 companies had made bids to become the master custodian firm and that a final selection of the winning firm would be announced by Tuesday.

He said more than 100 companies had submitted bids to become one of the five to 10 firms that will operate the program to buy and manage the bad assets from financial firms.

Kashkari's speech Monday marked his first public appearance since being selected a week ago to run the program.

Paulson said during weekend meetings with global financial powers that his department was working around the clock to carry out the plan. His comments were meant to convince investors that the world's largest economy is moving quickly to get lending restarted and avert what could be a deep and painful global recession.

Those dire concerns sent markets around the world reeling last week, giving the Dow Jones industrial average it worst week on record. U.S. stocks have lost $8.4 trillion in value over the past year.

In just the past six weeks the federal government has taken over the nation's two biggest mortgage finance firms, Fannie Mae and Freddie Mac and rescued American International Group, the world's biggest insurance company.

As the bailout bill rushed through Congress, Paulson stressed that the major aim was to buy bad assets, primarily mortgage-backed securities, from financial institutions. The hope was that taking those bad loans off the books would encourage banks to return to more normal lending operations and unclog credit flows - the economy's lifeblood.

Paulson said Friday that the government also would use some of the money to buy stakes in banks. The goal is to give banks the resources to resume lending at more normal levels.

The about-face has left the administration trying to decide how much to devote to buying bad assets and how much to use for stock purchases.

Lawmakers who pushed to include the stock purchase program in the rescue bill over initial administration objections say the stock purchases can start much faster than the effort to buy bad assets and help restore market confidence sooner.

While the administration is rushing to put the finishing touches on the rescue plan, House Republicans and Democrats pushed dueling economic stimulus measures.

House Republicans announced - but then backed down on - plans to demand that majority Democrats call Congress back into session before the elections to pass a stimulus bill.

Democrats, who are considering calling Congress back into session after the Nov. 4 election to pass their package, were meeting with economic experts Monday on the crisis and potential solutions.

The Associated Press and Reuters contributed to this report.

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