The Federal Government will buy approximately $125 billion of preferred stock in nine large banks in the first step of injecting $250 billion in banks across the country. Here are the key components of the plan:

• The structure will be as a dividend paying perpetual preferred stock
• Dividend rate to be 5% initially and increasing to 9% after five years
• Companies that return the money in 2009 will get better terms
• B of A, JP Morgan and Citigroup will get $25 billion each
• Goldman Sachs and Morgan Stanley will get $10 million each
• BONY and State Street will get lesser amounts
• FDIC will guarantee newly issued senior debt issued by these firms for a period of three years

To give some idea of just how massive these injections are as of June 30, Citigroup had a little over $100 billion in tangible shareholders equity and another $27 billion in perpetual preferred. This infusion will increase the shareholders equity by approximately 20% and could potentially increase Citigroups' ability to lend by a staggering $300 billion. For Bank of America that would also increase lending capacity by $300 billion. This is why this is a superior answer to the credit crunch compared to the initial legislation that passed two weeks ago. Indeed the TED spread we talked about as an indicator of the health of the credit markets has already eased somewhat.