Bailout bill also lets U.S. govt buy bank shares

By Svea Herbst-Bayliss and Scott Malone

PROVIDENCE, Rhode Island (Reuters) - The $700 billion (401.5 billion pound) bailout law to help Wall Street gives the U.S. government the option of buying preferred stocks from ailing financial companies, the head of the U.S. House Financial Services Committee said on Monday.

"We can buy these preferred shares and if a company becomes more profitable, you (taxpayers) will get a share of that as well," Rep. Frank, a Massachusetts Democrat, said.

He declined to say which companies might be among the pool the Treasury will choose from.

Blaming lax regulation for the worst U.S. financial crisis since the Depression, Frank also vowed to police banks and even hedge funds more actively to avoid future financial meltdowns.

U.S. stocks plunged to their lowest level in about four years at one point on Monday, amid fears the widening credit crisis would drag the global economy into recession.

Frank said the stock market is not a good short term indicator of how the bailout is perceived and how it will work. Given last week's disappointing U.S. jobs data, Frank said a sharp stock market drop is understandable.

Frank has been credited with largely shaping the $700 billion bailout bill that President George W. Bush signed into law on Friday. Wall Street has focussed on provisions in the law that let the U.S. Treasury Department buy toxic mortgage-backed securities from financial institutions, but the law also allows the government to take another approach and buy stakes in distressed financial companies, he said.

Next year's agenda in Congress will include capping runaway executive compensation, imposing restrictions on certain complex financial products and regulating certain areas of the market that currently are not restricted, Frank said.