by Kevin G. Hall

WASHINGTON - President Bush on Tuesday took the wraps off a historic and reworked financial-rescue plan, confirming that the United States will take equity stakes in nine banks, backstop virtually all non-interest-bearing bank accounts and guarantee most new loans between banks.

The White House plan marks the first such deep government intervention in markets since the Great Depression. Bush noted that he didn't take the aggressive and unusual steps lightly, stressing that "these measures are not intended to take over the free market, but to preserve it."

Among the bold moves announced an hour before financial markets opened:

- Nine banks have "volunteered" to sell equity stakes worth a combined $125 billion to the U.S. government. The Treasury will get preferred, nonvoting stock. Other banks have until Nov. 14 to offer equity stakes to the government. The Treasury said that $250 billion of the $700 billion rescue plan that Congress approved last month would be deployed for this confidence-building step.

- The Federal Deposit Insurance Corp. will temporarily guarantee all new senior debt issued by FDIC-insured banks, thrifts and holding companies. This move addresses the freeze in short-term lending between banks, which threatens to paralyze the broader U.S. economy. Essentially, the FDIC will insure loans between banks until the crisis subsides. It will be paid for by premiums and transaction fees.

- The FDIC will guarantee all non-interest-bearing accounts in banks and thrifts that it insures. This is a new and important wrinkle to help smaller businesses across the United States. The FDIC recently more than doubled the insurance it provides on bank deposits to $250,000. But that figure didn't cover a lot of businesses that maintain accounts for purposes of payroll and cash flow.

All these steps had been signaled late Monday night, and rumors of a change in the original action plan sent U.S. stocks soaring to record single-day point gains. The Dow Jones Industrial Average rose 936 points Monday, and soared almost 400 points on opening Tuesday.

Treasury Secretary Henry Paulson last month pushed a rescue plan that sought to purchase distressed assets from banks and other financial firms, mostly toxic mortgage bonds that no one wanted to buy. It took two tries to get the plan through the House of Representatives, however, and the financial crisis spread globally, aided by Europe's inability to forge a common response in early October.

As the crisis deepened, Europe eventually adopted on Sunday an approach first pushed by Great Britain, namely guaranteeing loans between banks and taking stakes in banks to signal that these institutions won't be allowed to fail. Washington followed suit Tuesday morning.

"Government owning a stake in any private U.S. company is objectionable to most Americans, me included," Paulson said. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable. When financing isn't available, consumers and businesses shrink their spending, which leads to businesses cutting jobs and even closing up shop."

With the recent congressional battle still fresh in mind, Paulson stressed that the new, more comprehensive approach wasn't a giveaway to banks and other lenders.

"Institutions that sell shares to the government will accept restrictions on executive compensation, including a . . . ban on golden parachutes during the period that Treasury holds equity issued through this program," he said. "In addition, taxpayers will not only own shares that should be paid back with a reasonable return but also will receive warrants for common shares in participating institutions. We expect all participating banks to continue and to strengthen their efforts to help struggling homeowners who can afford their homes avoid foreclosure."

Not all nine of the banks that are participating in the government's equity purchase program did so voluntarily. Paulson met with their executives late Monday and let it be known that it was in their interest to participate, calling the move patriotic. One reason for the reluctance was that the Treasury will curtail the lucrative executive compensation and bonuses for top bankers who participate in the program.

The nine initial banks taking part are Bank of America, Merrill Lynch, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street and Wells Fargo.

In another important development Tuesday, the Federal Reserve set Oct. 27 as the date to begin purchasing commercial paper from U.S. corporations. This paper is a short-term promissory note that helps corporations fund their day-to-day needs, but the market for this staple of finance has dried up amid the credit crisis. The Fed announced earlier this month that it would bypass banks and lend directly to corporations through the Commercial Paper Funding Facility. The lending will occur only on three-month notes that have the highest rating.

Bush sent a letter Tuesday to the leaders of the House and Senate, informing them of his intent to spend $350 billion to purchase distressed assets from troubled banks and financial firms.

The Treasury's point man on the rescue plan, Neel Kashkari, on Monday unveiled a number of appointments and hires designed to move on the purchases in coming weeks. He noted that he won't buy only complex mortgage-backed securities, which involve pools of thousands of mortgages, but also whole loans. These are individual mortgages held by banks, many of them community or regional banks. The distinction means that the Treasury will aim to remove bad assets from banks both big and small in an effort to remove obstacles to lending.