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 risk."

"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 solve it."

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 said.

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 Congress."

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.