Fed to pay interest on statutory reserves, give printed money for nothing

WASHINGTON, October 6, 2008 (AFP) – The Federal Reserve and the US Treasury, armed with new emergency powers, announced measures Monday to tackle a rapidly escalating financial crisis as panicked investors fled stock markets.

The central bank and Treasury said they were studying the possibility of making unsecured loans in an effort to keep credit flowing in the financial system.

Treasury officials said they would seek bids by Wednesday to manage a massive bailout plan for the financial sector.

The Federal Reserve said it would start to pay interest on bank deposits and expand bank loans to up to 900 billion dollars by year-end in a bid to increase liquidity.

A 700-billion-dollar financial sector bailout enacted Friday by President George W. Bush accelerated the launch of Fed interest rate payments on deposit balances to October 1, four years ahead of a date set in a 2006 law.

Treasury Secretary Henry Paulson tapped Neel Kashkari, an assistant Treasury secretary for international economics, to head the Office of Financial Stability including the Troubled Assets Relief Program (TARP) created in the emergency legislation last week.

Kashkari is a former executive at Goldman Sachs; Paulson was chief