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Sunday 21st of September 2008
September 19, 2008

US shares rise on reports of government help

by Kay Murchie

Global shares have received a boost this morning after reports of a proposal by the US Government to deal with the financial crisis.

Henry Paulson, US Treasury Secretary, and Ben Bernanke, chairman of the Federal Reserve, are investigating the possibility of setting up a repository for bad bank, according to a report by CNBC.

CNBC added that Mr Paulson is examining the possibility of establishing something similar to the Resolution Trust Corp, which was created after savings and loans banks collapsed in the 1980s.

It is understood that Paulson and Bernanke are to meet with congressional leaders to discuss ways out of the crisis.

Following the news, the FTSE 100 rose to 5,172.6 in early trading while the leading Dow Jones Industrial Average gained over 400 points to 11,019.69, a rise of 560 points from its low point of the day.

Global markets have suffered this week after Monday saw the collapse of Wall Street giant, Lehman Brothers, which was forced to file for bankruptcy after announcing it had failed to find a solution to its problems after a weekend of rescue talks with Barclays and Bank of America.

Meanwhile, US insurance giant AIG had to be rescued by the Federal Reserve while Bank of America acquired Merrill Lynch, and in the UK, HBOS has been acquired by Lloyds TSB.

Investors panicked with many fearing that other financial institutions would suffer the same fate.

However, yesterday in a bid to calm fears, Central banks from the UK, US, Europe, Canada, Switzerland and Japan injected $180 billion (£100 billion) into the global banking system.

Meanwhile, the remaining two independent investment banks on Wall Street, Goldman Sachs and Morgan Stanley, have been surrounded by merger speculation after shares in the two organisations plummeted over recent days.

Morgan Stanley is believed to be holding merger discussions with Wachovia, America’s fourth-largest bank, while Goldman Sachs is believed to be in talks with China Investment Corporation to prevent a similar fate to that of Lehman Brothers.

Finally, UK stocks have risen this morning after the news that the Financial Services Authority has banned short-selling in financial stocks.

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