Fed, Congress, President Review Plans to Aid Flailing Financial Markets
Calling the current economic crisis a “pivotal moment
for America’s economy,” Mr. Bush said he is seeking swift action from
legislators to “protect our nation’s economic health from serious
“There will be ample opportunity to debate the origins or this
problem,” he said during a statement in the White House Rose Garden, flanked
by Paulson and Federal Reserve Chairman Ben Bernanke. “Now is the time to
Fed, Treasury and congressional leaders met Thursday night to work out a deal
that could result in the government’s purchase and control of failing financial
institutions or just some of their toxic debt.
“I am convinced that this bold approach will cost American families far
less than the alternative — a continuing series of financial institution
failures and frozen credit markets unable to fund economic expansion,”
Paulson told reporters.
“The proposal could result in the most direct commitment of taxpayer funds
so far in the financial crisis that Fed and Treasury officials say is the worst
they have ever seen,” the New York Times reported.
Paulson said the goal is to return market confidence and stability. At a Friday
news conference in which he only took three questions, he was asked the approximate
cost of the intervention. “We’re talking hundreds of billions,” he
As Paulson spoke, the Dow Jones industrials were up over 300
points and at one point had soared by 450 points.
In the aftermath of this week’s bankruptcy of Lehman
Brothers, the sale of Merrill Lynch and bailout of American International
Group, Democrats in Congress have pushed for a second economic stimulus package.
Democrats said they will push for housing foreclosure relief if a deal
supporting broad institutional bailout is reached.
“We will try to put a bill together and do it fairly quickly,” House
Financial Services Committee Chairman Barney Frank, D-Mass., told Bloomberg
News. Details on the cost to taxpayers have not been disclosed.
“Significant amounts of taxpayer dollars are on the line,” Bush said,
but added “we expect this money will eventually be paid back.”
Congress and finance officials are likely to consider plans that would include
establishing an $800 billion fund to buy failing assets and “a separate
$400 billion pool at the Federal Deposit Insurance Corp. to insure investors in
money-market funds,” the New York Times reported.
“Another possibility is using Fannie and Freddie, the federally chartered
mortgage-finance companies seized by the government last week, to buy
assets,” according to the Times.
In order to restore investor confidence both at home and
abroad, the Security and Exchange Commission temporarily banned short selling
in 799 financial stocks until Oct. 2, Reuters reported. Short selling is a
trading method that bets the stocks will go down.
“The emergency order temporarily banning short selling of financial stocks
will restore equilibrium to markets,” SEC Chairman Christopher Cox said in
a statement. “This action, which would not be necessary in a
well-functioning market, is temporary in nature and part of the comprehensive
set of steps being taken by the Federal Reserve, the Treasury and the
Because short selling over the last few days had accelerated
the plunging confidence of investors, the move seemed to have boosted both
domestic and foreign markets.
On Friday, global stock markets roared higher. After a
three-day, $1.9 trillion loss in market value on the MSCI World Index, the
United Kingdom’s benchmark FTSE100 index rose 7.9 percent, futures on the
Standard and Poor’s 500 Index climbed 2.8 percent and Japan’s Nikkei 225 Stock
Average increased 5 percent, according to Bloomberg.
The Treasury also announced Friday a $50 billion plan to
insure the holdings of money-market mutual funds over the next year, Bloomberg
News reported. The European Central Bank, Swiss National Bank and Bank of
England also offered up more cash. The three banks put a combined $90 billion
into money markets in a lockstep move.
However, the chairman of the U.S. Senate Banking Committee,
Chris Dodd, D-Conn., warned that the country could be “days away from a
complete meltdown of our financial system” and said Congress would work
quickly to prevent that.