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Government Eyes Sweeping Wall Street Rescue Plan

After Ray Suarez recaps Friday's updates on government efforts to rescue the a financial system teetering on bad mortgage bets, Margaret Warner speaks with a financial columinst and a business reporter about the government's intervention and the impact of the Wall Street shakeup.

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  • JIM LEHRER:

    We begin our coverage of the financial crisis with the day's events in Washington. Ray Suarez reports.

  • RAY SUAREZ:

    A little more than 12 hours after he briefed members of congress, Treasury Secretary Henry Paulson publicly outlined the latest and widest-reaching government action to stem the financial crisis.

  • HENRY PAULSON, U.S. Treasury Secretary:

    The normal buying and selling of nearly all types of mortgage assets has become challenged. These illiquid assets are clogging up our financial system and undermining the strength of our otherwise sound financial institutions.

    As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted.

    To restore confidence in our markets and our financial institutions so they can fuel continued growth and prosperity, we must address the underlying problem.

    The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy.

    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.

    You said this needs to be a significant size. Are we talking hundreds of billions, a trillion dollars?

  • HENRY PAULSON:

    We're talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem.

  • RAY SUAREZ:

    Just minutes after his appearance at the Treasury, Paulson appeared at President Bush's side. Federal Reserve Chairman Ben Bernanke and Chris Cox, the chair of the Securities and Exchange Commission, were also there.

    Mr. Bush laid out other details of the government's plan to help reassure Americans and the markets.

    GEORGE W. BUSH, President of the United States: The Department of Treasury is acting to restore confidence in a key element of America's financial system, money market mutual funds.

    In the past, government insurance was not available for these funds. And the recent stresses on the markets have caused some to question whether these investments are safe and accessible.

    The Treasury Department's actions address that concern by offering government insurance for money market mutual funds. For every dollar invested in an insured fund, you'll be able to take a dollar out.

    The Federal Reserve is also taking steps to provide additional liquidity to money market mutual funds, which will help ease pressure on our financial markets.

    The Securities and Exchange Commission has issued new rules temporarily suspending the practice of short selling on the stocks of financial institutions. This is intended to prevent investors from intentionally driving down particular stocks for their own personal gain.

  • RAY SUAREZ:

    The broader rescue plan for dealing with bad debt needs congressional approval.

    One model that could appeal to nervous investors and banks: a new federal institution, like the one created during the savings and loan crisis in the late 1980s. The Resolution Trust Corporation, or RTC, bought, and eventually sold off, hundreds of billions of dollars of real estate assets to end the savings and loan crisis.

    On Capitol Hill, members of Congress said they'd try to act quickly. Minority Whip Roy Blunt.

    REP. ROY BLUNT (R), Minority Whip: Putting a floor under these — under the financial markets in securities particularly is an important thing to do, and it doesn't necessarily have to be something that impacts taxpayers in a negative way, but it all depends on how you put that structure together.

  • RAY SUAREZ:

    Senate Banking Committee Chairman Chris Dodd, who warned this morning the country was "days away from a complete meltdown of our financial system," told reporters Congress would work quickly to prevent that.

    SEN. CHRIS DODD (D), Connecticut: That's why all of us are prepared to do whatever we can this weekend, working with the administration as they present their plan to fashion a proposal here that will get us out of this mess.

  • RAY SUAREZ:

    Lawmakers said they believe they could pass a bipartisan bill by the end of next week.

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