Treasury Secretary Henry Paulson said Friday it will take “hundreds of billions of dollars” to buy up troubled assets as part of a massive government intervention the White House wants Congress to approve to relieve the strain on financial markets.
Paulson said he will work with lawmakers over the weekend to “flesh out the details” of the proposal for action next week. And he is already facing warnings from Democrats that the legislation must also deal with some relief for homeowners faced with foreclosure on their mortgages.
After meeting with his panel Friday, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) said the bill should not be a “Christmas tree” filled with amendments. But Congress must address the causes of the instability now in the housing markets and “bring to closure the foreclosure problem,” Dodd said.
Paulson’s comments—which came at a Treasury press conference—are the first statement yet from the administration acknowledging the full scope of the endeavor.
The secretary said the funding must be “sufficiently large to have maximum impact,” but he said he 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.”
The two mortgage finance giants, Fannie Mae and Freddie Mac, will increase their purchase of mortgage-backed securities in a second step to ease the crisis, triggered in large part by the bust in the U.S. housing market. But Paulson said the much larger intervention is needed because many of the assets now clogging the financial system wouldn’t qualify for these purchases.
“The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded,” Paulson said. “These illiquid assets are choking off the flow of credit that is so vitally important to our economy.”
Paulson said he was hopeful Congress could act as early as next week.
Using authorities it already has, the government moved on a series of fronts Friday:
—Treasury announced a $50 billion guarantee program to protect investors in portions of the mutual fund industry.
—The Federal Reserve opened a new credit line to inject more money in the banking system, also aimed at helping mutual funds. The action follows steps Thursday by the Fed—in concert with European central banks—to dramatically increase the money supply by as much as $180 billion to make it easier for the finance markets to adapt to the crisis.
—The Securities and Exchange Commission temporarily banned short selling in which a market-player bets that the price of a given stock will decline."The emergency order temporarily banning short-selling of financial stocks will restore equilibrium to markets," said SEC Chairman Christopher Cox in a statement.
Friday’s rapid-fire announcements followed a dramatic Capitol meeting Thursday night in which Treasury, Fed, and SEC chiefs met with top leaders of Congress, winning promises of bipartisan cooperation in the massive intervention.
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'An unprecedented crisis'
By DAVID ROGERS | 9/19/08 12:14 PM EDT Updated: 9/19/08 12:14 PM EDT
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